As first reported in a Breaking News Alert, Top 40 supplier American Apparel (asi/35297) filed for Chapter 11 bankruptcy protection yesterday morning, following a deal reached with most of the firm’s secured lenders. The filing, which took place in Delaware and still requires court approval, comes as the firm has suffered sales and profit losses in 2015, but the company says it will continue its regular business operations during the restructuring.
Specifically regarding its wholesale division, an American Apparel spokesperson told Counselor yesterday that the company expects to operate uninterrupted during its bankruptcy proceedings and restructuring. “It is business as usual,” the spokesperson said. “The wholesale division, which represents the foundation of American Apparel, [as well as] the board [and] our CEO Paula Schneider, has committed to investing more money and resources into the business to insure it maintains continuity with significant growth in the future. Wholesale launched a new catalog and fresh products in August with more new styles in the development pipe line for a 2016 product launch.”
American Apparel said it expects the restructuring to be completed within six months. No layoffs or store closings were announced and Schneider will remain at the helm of the Los Angeles-based manufacturer. Under the restructuring plan, five American Apparel bondholders would convert some $200 million in bonds into equity. Participating bondholders would provide $90 million in debtor-in-possession financing, plus $70 million in new liquidity, according to published reports. The new financing would cut American Apparel’s debt to $120 million from $311 million.
“Our debt load simply wasn’t sustainable. You can’t do a turnaround plan without cash,” Schneider said. “Every day, we would make choices on what we were going to buy, even though we needed more for everyone. Nothing that was really moving the company forward. Not having the nuisance lawsuits, not having this massive debt, these are all extremely important things for the company to thrive.”
The Chapter 11 filing follows a tumultuous year in which American Apparel ousted its founder, Dov Charney, in December 2014. Since then, Charney and American Apparel have been embroiled in multiple legal battles, as Charney has filed a variety of lawsuits against the company. As of this morning, Charney had not publicly commented on American Apparel’s bankruptcy filing, and he has not yet responded to Counselor’s request for comment.
In its most recent financial reporting, American Apparel said its consolidated Q2 revenues in the firm’s wholesale division – which includes promotional products sales – slipped to $48 million, down from $54 million a year earlier. Quarterly retail sales, meanwhile, plunged to $74 million, off from $94 million in Q2 of 2014, while online revenues dipped to $11.5 million. American Apparel ranks number 14 on Counselor’s Top 40 supplier list, after it reported 2014 North American ad specialties sales of $105.2 million, a 6% increase over the previous year.
Read some of the reaction on Twitter to the American Apparel bankruptcy news.