Investors were today weighing up the likely implications of American Apparel’s announcement that it is filing for Chapter 11 bankruptcy protection.
The global retailer of branded fashion-basic apparel, including lingerie, rocked the market yesterday when it revealed it had struck an agreement with 95% of its secured lenders to implement a pre-arranged financial restructuring.
This reorganisation will enable the retailer to implement a comprehensive transformation strategy to revitalise the business and brand, while keeping its production and operations in the US.
American Apparel said that retail stores, wholesale and US manufacturing operations would continue to operate without interruption throughout the Chapter 11 process, while international stores remain unaffected.
The restructuring support agreement will substantially reduce the company’s debt and interest payments through the elimination of over $200m of its bonds in exchange for equity interests in the reorganised company, and provide the company with access to financing during and after its restructuring. The company expects to complete the restructuring within approximately six months.
Paula Schneider, American Apparel’s CEO, said: “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 $90m in debtor-in-possession (DIP) financing. These supporting creditors have committed $70m of new capital to support the reorganisation and recapitalisation 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 $300m to no more than $135m, and annual interest expense will decrease by $20m.
The company said it 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. The company employs more than 9,000 people and operates 227 retail stores in 19 countries.