American Apparel files for bankruptcy: Reuters

Oct 5 (Reuters) – American Apparel Inc filed for chapter 11 bankruptcy protection on Monday, joining a rising number of U.S. apparel retailers reeling under tough competition and lower spending by teen shoppers.

The teen apparel retailer said it had reached a restructuring support agreement with most of its secured lenders and would continue to operate its business throughout the process with its stores and U.S. manufacturing operations continuing uninterrupted.

The retailer expects to cut its debt to $135 million from $300 million, as the deal will eliminate more than $200 million of bonds in exchange for equity in the reorganized company.

Under the agreement, American Apparel’s secured lenders will provide about $90 million in debtor-in-possession financing, and have committed $70 million of new capital, it said.

The company expects to complete the restructuring within six months.

“By improving our financial footing, we will be able to refocus our business efforts on the execution of our turnaround strategy,” Chief Executive Paula Schneider said in a statement.

Teen apparel retailers are struggling as customers switch to fast-fashion brands such as H&M, Forever 21 and Inditex’s Zara and online retailers such as Inc that offer deep discounts.

Companies such as Wet Seal, Cache Inc, Deb Shops, Delia*s and Body Central Corp have filed for bankruptcy in the last year.

American Apparel, founded in 1989 by Dov Charney whose ‘Made in America’ mantra found huge favor among young shoppers, has been in disarray after it fired him in December for alleged misconduct.

Charney has since filed several lawsuits against the company, alleging defamation, representation in false light and claims for securities fraud.

In August, the company raised going concern doubts, saying it may not have enough capital to sustain operations for the next 12 months. The Los Angeles-based retailer has not turned a profit since 2009.

The New York Stock Exchange warned last month American Apparel was at risk of being delisted, saying its financial condition had become so impaired that it was questionable whether the retailer could stay in business.

“Our debt load simply wasn’t sustainable … Not having the nuisance lawsuits, not having this massive debt, these are all extremely important things for the company to thrive,” CEO Schneider told the New York Times on Sunday. (

The case is in U.S. Bankruptcy Court, District of Delaware, Case No: 15-12055. (Reporting by Supriya Kurane in Bengaluru; Editing by Gopakumar Warrier)