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American Apparel files for bankruptcy after huge losses
Oct '15
American Apparel Inc., a clothing chain known for provocative marketing and boardroom drama, has filed for bankruptcy protection after years of losses.

As part of a prearranged Chapter 11 restructuring, the Los Angeles-based company will reorganize its debts, which have which have grown bigger than its assets. More than $200 million of bonds will be exchanged for equity interests in the reorganized company, it said in a press release. American Apparel will remain in business during the process.

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.

"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," said Paula Schneider, American Apparel's Chief Executive Officer.

American Apparel's filing for bankruptcy follows a clash between the company's controversial founder Dov Charney and the board that led to his ouster last year, but the company had been in financial crisis for much longer. Successive losses every year since 2010 whittled down the company's worth and by the end of June 2015, American Apparel ended up with a negative book value with liabilities ballooning to $161 million more than its assets. (SH)

Fibre2Fashion News Desk – India

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