American Apparel

American Apparel net losses have totaled nearly $384 million over the last 5 1/2 years. (Spencer Platt / Getty Images)

Shan Li
October 4, 2015

American Apparel, the trendy but troubled Los Angeles clothier, is preparing to file for Chapter 11 bankruptcy protection Monday — yet another blow to a company that has been struggling since ousting its chief executive last year.

The firm said Sunday that it had reached an agreement with 95% of its secured lenders to implement a financial restructuring that will drastically cut down its debts and interest payments.

Under the agreement, which has been approved by the board, lenders have agreed to eliminate over $200 million bonds in exchange for shares in the reorganized company — known in business parlance as a debt-for-equity swap.

American Apparel said the reorganization will allow the company to keep its “production and operations in the U.S.” The company will come out of bankruptcy as a private company, analysts said.

“This restructuring will enable American Apparel to become a stronger, more vibrant company,” Chief Executive Paula Schneider said in a statement. “By improving our financial footing, we will be able to refocus our business efforts on the execution of our turnaround strategy.”

Creditors have agreed to provide American Apparel with $90 million of debtor-in-possession financing, and have committed another $70 million in capital to support the restructuring of the company, American Apparel said.

That should reduce the company’s debt from $300 million to no more than $135 million, American Apparel said. Annual interest payments will be reduced by $20 million.

But if the plan meets with the approval of the bankruptcy court in Delaware, existing shareholders will essentially be left with nothing. That includes founder Dov Charney, who was fired as chief executive last year after an investigation found evidence of inappropriate behavior with employees and misuse of company funds. Charney has denied these allegations.

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