American Apparel files Chapter 11

In a not unanticipated move, American Apparel filed for bankruptcy protection in Delaware on Monday. But the company said its stores will not be affected by the filing, and no store closings or layoffs were announced.



The Los Angeles-based retailer, which has not reported a profit since 2009, has been struggling under the weight of big debts sluggish sales and a protracted — and costly — legal battle with its founder and ousted CEO, the controversial Dov Charney.



The filing comes on the heels of a deal American Apparel struck with its secured lenders that would reduce the retailer’s debt to $135 million from $300 million through debt-for-equity conversion, with bondholders swapping their debt for shares in the company.



The deal, which still requires approval by bankruptcy court, would allow American Apparel to keep its manufacturing operations, which are located in Los Angeles, and its 130 U.S. stores in open, the company said. (The company is the largest apparel manufacturer in North American.) The retailer’s overseas operations are unaffected by the restructuring.



The bankruptcy would wipe out American Apparel’s current shareholders, including Charney, whose stake in the company was worth about $8.2 million as of Friday, according to the New York Times. It would put the company’s creditors in full control, including Standard General, the hedge fund that is also leading the turnaround at RadioShack.



The New York Stock Exchange warned last week that American Apparel was at risk of being delisted. The company’s shares closed at just 11.2 cents on Friday.



In January, American Apparel named veteran retailer Paula Schneider as CEO. She launched an ambitious effort to turn around the company, an effort that was hampered by the company’s debt.



In an interview with the Times on Sunday, Schneider indicated that the bankruptcy would give the company a fresh start.



Our debt load simply wasn’t sustainable. You can’t do a turnaround plan without cash,” Schneider told the Times. “Every day, we would make choices on what we were going to buy, even though we needed more for everyone. Every day, I have to pick between what I’m buying for retail or wholesale, or giving e-commerce enough money to develop a mobile app.”



The bankruptcy would also likely delay the various lawsuits filed by Charney against the company.



As of September 30, 2015, American Apparel operated 227 retail stores in 19 countries including the United States and Canada.