American Apparel filed for bankruptcy protection; restructures $300M debt

By Money Times

Oct 06, 2015 03:05 AM EDT

Los Angeles-based American Apparel filed for bankruptcy protection. The clothing company agreed to restructure its finances after negative controversies and slump of sales.

After years when its controversial CEO Dov Charney stepped down, American Apparel had filed for Chapter 11 bankruptcy protection, Forbes reported.

The company will convert $200M debt into equity stakes. The lenders will give out $90M debtor-in-possession financing in addition to $70M for new financing. Through that, the apparel's debt will be reduced from $300M to $135M.

American Apparel's current CEO, Paula Schneider, said the decision will make room for the company's recovery. "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," Schneider said.

American Apparel has 260 stores and concessions in 19 countries. It recorded around $19.4M lost in the last quarter and hasn't turned a profit since 2009.

Its stocks had dropped three cents this week and trades for just nine cents per share as of this moment.

The company suffers from amassed of lawsuits by its former CEO, Charney. According to the BBC, he was fired because of sexual harassment cases and misuse of funds.

On that note, The Guardian considers the evolving tastes of young customers pulled the company's sales down. American Apparel falls short of adopting the new fashion choices for its target consumers.

Plus, Charney's actions weakened the brand's morale. Its filthy advertisements do not appeal to young shoppers as well. So they opt to purchase more trendy attires over American Apparel's casual clothing.

American Apparel board kicked out Charney as CEO two years ago for sexual misconduct. They emphasized the increasing cost of defending Charney over lawsuits filed against him led them to fire Charney. Added to that, potential backers would also not prefer to deal with the self-confessed sexual offender.

The apparel brand targets the restructure of debts for the next six months. Its wholesale and retail stores will continue operations.

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