American Apparel, Inc. has announced that it has filed for bankruptcy under the Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the District of Delaware. This move is part of a bold restructuring strategy the company plans to achieve with the help of a pre-arranged agreement with about 95% of secured lenders. This way, American Apparel hopes to be able revive its brand while being able to keep both production and operations inside the U.S.
Debt reduction is also a priority in American’s Apparel restructuring plans. In fact, with the help of a restructuring support agreement, the company hopes to reduce some of its debt and interest payments through the elimination of more than $200 million of its bonds. This will be done in exchange for some equity interests in the reorganized company. Moreover, following the reorganization, the company expects its debt to go from $300 million to just around $135 million and for its annual interest expense to go down by $20 million.
At the same time, the restructuring support agreement also means that American Apparel will have access to around $90 million in debtor-in-possession (DIP) financing. Furthermore, the creditors have also given a $70 million commitment for new capital. American Apparel Chief Executive Officer Paula Schneider says that the company’s “turnaround strategy” will involve coming up with new and relevant products, expanding the company’s online business, investing in new stores and coming up with new marketing campaigns among others.
In the midst of this, American Apparel took to Twitter to assure its customers that the bankruptcy and restructuring is “a positive development.” Moreover, the company says, “We remain committed to bringing you the US-made clothes you love.”