UPDATE: 7:35 a.m. EDT -- American Apparel Inc said in a statement Monday that it has reached a “restructuring support agreement with 95% of its secured lenders” to overhaul its business. The company added that the move will help the company keep its production and operations intact while boosting the business and the brand.
The company said that it filed to reorganize under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court in Delaware. The company also said in the statement that the agreement was approved by the company’s directors and will help reduce its debt and interest payments through the “elimination of over $200 million of its bonds in exchange for equity interests in the reorganized Company.”
The statement added: “As a result of the reorganization, American Apparel's debt will be reduced from $300 million to no more than $135 million, and annual interest expense will decrease by $20 million.”
UPDATE: 1:15 a.m. EDT -- American Apparel Inc. filed for bankruptcy protection early Monday after struggling for months with increasing debt, falling sales, and a legal battle with former chief executive and founder Dov Charney, who left the company in December, the New York Times reported.
The Chapter 11 petition was reportedly filed by the company in a federal bankruptcy court in Delaware, after the company reached a deal with the company’s secured lenders. No layoffs were announced in the filing, the Times reported, adding that the company’s operations overseas would remain unaffected.
The restructuring from the bankruptcy, which could take six months to complete, would allow the company to keep its 130 stores in the U.S. open, but establish control in the hands of the company's creditors, the report added.
American Apparel Inc. is finalizing plans to file for bankruptcy protection as early as Monday, and is planning to close some stores and restructure debt, the Wall Street Journal reported, citing sources. The company, which has delayed bankruptcy with a series of cash infusions, employed about 10,000 people in June, according to the Journal.
The Los Angeles-based retailer has been dealing with increasing legal expenses as it fights former chief executive Dov Charney -- who left the company in December -- in court, and falling sales. The company, which recorded a debt $38.4 million on its credit facility on June 30 along with $6.9 million in cash, has also struggled to address complaints from vendors, employees and shareholders, according to Forbes.
Last month, the company was notified by the New York Stock Exchange (NYSE) that it was at risk of being delisted. According to NYSE, a company trading on the exchange has to maintain a price of $1 per share while American Apparel’s shares had dropped to 16 cents a share last month, the Journal reported at the time. The company has been given a Nov. 15 deadline to comply with listing standards but earlier reports suggested that it may file for bankruptcy by then.
The company is also preparing a restructuring plan to skip a $14 million coupon payment that is due Oct. 15 and instead use a 30-day grace period until it can boost revenues with Halloween sales. The company had reached an agreement with creditors for an additional $90 million in August but reiterated the threat of a looming bankruptcy at the time, the Journal reported.