American Apparel, Inc. has announced in a press release that the company and certain of its domestic subsidiaries have filed for a Chapter 11 of the U.S. Bankruptcy in the U.S. Bankruptcy Court for the District of Delaware.
The filing of the Chapter 11 bankruptcy is part of a pre-arranged agreement the company has with 95 percent of its lenders to implement a financial restructuring that will reorganize and revitalize the business and the brand.
American Apparel said in the press release that the restructuring support agreement will substantially reduce the company's debt and interest payments.
This will be achieved through the elimination of $200 million of its bonds in exchange for the equity interest in the reorganized company.
American Apparel also said that the agreement will provide the company with access to financing during and after its restructuring.
The company will continue to operate its business without interruption to customers, employees and vendors.
Paula Schneider, the CEO of American Apparel, said in the press release that the restructuring will enable the company "to become stronger and more vibrant"
"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," she said.
The New York Times also reported that American Apparel joins numerous peers who have succumbed to intense retail competition.
Stores that cater to teenagers like American Apparel, Abercrombie & Fitch, and Aeropostale have struggled against the "fast-fashion" labels.
Some analysts in the U.S. are saying that the country has too many brands and too many brick-and-mortar stores that are chasing consumer spending that is becoming sluggish, according to The New York Times.
Consumers are also increasingly becoming more interested in the latest app or gadget than a pair of jeans.
The New York Times also stated that American Apparel's sales have fallen 17 percent in the second quarter compared to last year.
The company's losses in the last five years have topped $340 million, and it lost another $45 million this year.
Under the agreement, American Apparel's secured lenders will provide the company about $90 million in debtor-in-possession (DIP) financing, according to the press release.
The creditors have already committed $70 million of new capitals to support the reorganization and recapitalization of the business.
American Apparel also said in the press release that the reorganization will reduce their $300 million debt to no more than $135 million.
The company's annual expense is also expected to decrease by $20 million.
American Apparel said in the press release that they expect to complete the reorganization within approximately six months.
