American Apparel files for Chapter 11 bankruptcy

Posted On Monday, 05 October 2015 09:46 Published by
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American Apparel, Inc., a vertically-integrated manufacturer, distributor, and retailer of branded fashion-basic apparel, announced today that it has reached a restructuring support agreement with 95% of its secured lenders to implement a pre-arranged financial restructuring.

Paula_Schneider_American_Apparel

This reorganization will enable the Company to implement a comprehensive transformation strategy to revitalize the business and brand, while keeping its production and operations in the U.S. Throughout the implementation of this process, American Apparel will continue to operate its business without interruption to customers, employees and vendors.

The restructuring support agreement, which has been approved by the Company's board of directors, will substantially reduce the Company's debt and interest payments through the elimination of over $200 million of its bonds in exchange for equity interests in the reorganized Company, and provide the Company with access to financing during and after its restructuring. As part of this agreement, American Apparel, and certain of its domestic subsidiaries have voluntarily filed to reorganize under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"). The Company expects to complete the restructuring within approximately six months.

Paula Schneider, American Apparel's Chief Executive Officer, commented, "This restructuring will enable American Apparel to become a stronger, more vibrant company. By improving our financial footing, we will be able to refocus our business efforts on the execution of our turnaround strategy as we look to create new and relevant products, launch new design and merchandising initiatives, invest in new stores, grow our e-commerce business, and create captivating new marketing campaigns that will help drive our business forward."

Under the restructuring support agreement, American Apparel's secured lenders will provide approximately $90 million in debtor-in-possession (DIP) financing. These supporting creditors have committed $70 million of new capital to support the reorganization and recapitalization of the business. The Company anticipates that such financing will be more than sufficient to fund its ongoing operations and pave the way for a successful reorganization. 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.

American Apparel has filed with the Bankruptcy Court and expects to obtain approval for various customary motions for immediate relief to allow the Company to make certain necessary payments to employees and suppliers that will permit it to continue operating without interruption during the initial phase of the restructuring. The Company will pay all of its suppliers in full under normal terms for goods and services provided on or after the filing date of October 5, 2015. American Apparel's international operations are not affected by the reorganization in the U.S.

Schneider added, "This process will ultimately benefit our employees, suppliers, customers and valued partners. American Apparel is not only an iconic clothing brand but also the largest apparel manufacturer in North America, and we are taking this step to keep jobs in the U.S.A. and preserve the ideals for which the Company stands. In partnership with our bondholders, we can work towards a new future for the Company and concentrate on what matters: making and selling great clothing."

The Company plans to continue implementing its strategic plan, which is focused on improving product selection, cost management, improving supply chain efficiencies, SKU rationalization, maximizing retail, e-commerce and wholesale opportunities, while continuing to create award-winning marketing campaigns that are positive, inclusive and socially conscious."

American Apparel's legal advisor in connection with the restructuring is Jones Day. FTI Consulting serves as its restructuring advisor and Moelis & Company serves as its investment banker for the restructuring.

The restructuring plan is subject to satisfaction of certain customary conditions, including approvals by the Bankruptcy Court. If the restructuring transactions contemplated by the restructuring support agreement are consummated, the Company's existing common stock will be extinguished and the holders of the common stock will not receive any consideration, consistent with legal priorities.

As of September 30, 2015, the Company had approximately 9,000 employees and operated 227 retail stores in 19 countries including the United States and Canada. The Company also operates a global e-commerce site that serves over 50 countries worldwide.

Last modified on Monday, 05 October 2015 15:15

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