Question: Why did American Apparel file Chapter 11?
Answer: Because they earned less than they spent.
If you want a more specific answer, maybe you would like one from the following two choices:
- It is almost impossible to successfully make a profit selling commodity clothing that is made in the United States (and please don't try to say that American Apparel is a popular brand name which makes it more than simply a commodity item).
- They moved from "manufacturing and wholesaling" to "manufacturing, wholesaling, AND retailing".
Did this all happen because Dov Charney was ordered to chill out? My guess is the debt & decision making that led to the troubles was already in place prior to all the nonsense that has been going back & forth with company management.
American
Apparel, and certain of its domestic subsidiaries have voluntarily filed to
reorganize under Chapter
11
of the U.S. Bankruptcy
Code in the U.S. Bankruptcy Court for the District of Delaware (the "Bankruptcy
Court"). The Company expects to complete the restructuring within approximately
six months.
American Apparel, Inc., announced
today October 5, 2015 that it has reached a restructuring support agreement with
95% of its secured lenders to implement a pre-arranged financial restructuring.
This reorganization will enable the Company to implement a comprehensive
transformation strategy to revitalize the business and brand, while keeping its
production and operations in the U.S. Throughout the implementation of this
process, American Apparel will continue to operate its business without
interruption to customers, employees and vendors. As you know American Apparel
is a vertically-integrated manufacturer, distributor, and retailer of branded
fashion-basic apparel. The restructuring will hopefully help them get their
business back on track.
The restructuring
support agreement, which has been approved by the Company's board of directors,
will substantially reduce the Company's debt and interest payments through the
elimination of over $200 million of its bonds in exchange for equity interests
in the reorganized Company, and provide the Company with access to financing
during and after its restructuring.
American
Apparel Reaches Agreement with Lenders to Significantly Reduce its Debt and
Interest Payments.
Below
are a few key points:
- American
Apparel plans to recapitalize through consensual pre-arranged Chapter 11
reorganization
- Retail
stores, wholesale and U.S. manufacturing operations to continue without
interruption; international stores not
affected
- Pre-arranged
agreement with 95% of secured lenders will strengthen balance
sheet
- Lenders will
provide the company with additional liquidity to ensure financial stability
throughout the reorganization process
- Reorganization
enables the implementation of the Company's transformation strategy to
revitalize brand
Paula Schneider,
American Apparel's Chief Executive Officer, commented, "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 $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.
American Apparel has
filed with the Bankruptcy Court and expects to obtain approval for various
customary motions for immediate relief to allow the Company to make certain
necessary payments to employees and suppliers that will permit it to continue
operating without interruption during the initial phase of the restructuring.
The Company 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. American
Apparel's international operations are not affected by the reorganization in the
U.S.
As of September 30,
2015, the Company had approximately 9,000 employees and operated 227 retail
stores in 19 countries including the United States and Canada. The Company also
operates a global e-commerce site that serves over 50 countries worldwide
at http://www.americanapparel.com. In addition, the Company operates a leading
wholesale business that supplies high-quality T-shirts and other casual wear to
distributors and screen printers.
American Apparel's
legal advisor in connection with the restructuring is Jones Day. FTI Consulting
serves as its restructuring advisor and Moelis & Company serves as its
investment banker for the restructuring.
The restructuring plan
is subject to satisfaction of certain customary conditions, including approvals
by the Bankruptcy Court. If the restructuring transactions contemplated by the
restructuring support agreement are consummated, the Company's existing common
stock will be extinguished and the holders of the common stock will not receive
any consideration, consistent with legal priorities.
American Apparel has
set up a toll-free reorganization hotline, accessible to U.S. callers at: +1 (877) 940-7795 and
international callers at +1
(614) 779-0360. Customers, employees, or other interested parties who may
have questions related to the reorganization may call this hotline for more
information. In addition, court filings and other documents related to the
restructuring are available on a separate website administered by the Company's
claims agent, Garden City Group at www.gardencitygroup.com/cases/AAI.
Please support clothing factories that produce garments in the USA. Visit our USA clothing factory page to find resources.
Thank you for taking the time to read our fashion industry blog post. We hope that you have found this news to be informative. If you have comments or questions, please add your thoughts in the discussion area below.