After months of speculation, American Apparel filed for Chapter 11 in a Delaware bankruptcy court on Monday.
The struggling Los Angeles-based clothing chain—which has not made a profit since 2009—said in a statement that its retail stores (both stateside and overseas), wholesale and U.S. manufacturing operations would continue to operate as normal under a restructuring deal reached with 95 percent of its secured lenders.
The company said it expects to reduce its debt from $300 million to $135 million and cut its annual interest expenses by $20 million through the elimination of more than $200 million of its bonds in exchange for equity.
Under the agreement, American Apparel’s secured lenders will provide about $90 million in debtor-in-possession (DIP) financing and have committed $70 million of new capital to support the reorganization and recapitalization of the business.
The restructuring is expected to be completed by early 2016.
Paula Schneider, American Apparel’s chief executive officer, commented, “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.”
News of the bankruptcy did not come as a surprise.
In August, the company cautioned that it didn’t have enough cash to see it through the next 12 months and revealed that net sales for the quarter ended June 30 had dwindled 17.2 percent to $134.4 million. Its net losses, meanwhile, had widened to $19.4 million, or $0.11 per share.
Sinking sales aside, American Apparel has been inundated with lawsuits by its founder and ousted CEO Dov Charney, who was fired for “cause” last December and has since retaliated with about 20 claims against the company, including defamation.
The restructuring plan is subject to court approval.