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American Apparel filed for bankruptcy early this morning, the New York Times reports. It's a milestone that has loomed over American Apparel all summer, as the brand struggled with substantial debts, poor sales, and a lack of cash on hand.
The Times reports that the bankruptcy follows a debt-for-equity conversion deal with most of AA's secured lenders that reduces the retailer’s debt by allowing bondholders to swap their debt for shares in the company. This deal allows American Apparel to keep their LA factory and 130 US stores open during the bankruptcy. The bankruptcy filing did not mention any layoffs.
If bankruptcy court appeals the filing, American Apparel's creditors will take full control, and current shareholders, including founder Dov Charney, will be pushed out. Bankruptcy proceedings would also temporarily delay the many lawsuits filed against AA. The company said that current CEO Paula Schneider will stay on during the bankruptcy, and Schneider told the Times the company will continue manufacturing its garments in the US.
"This restructuring will enable American Apparel to become a stronger, more vibrant company," Schneider said in a statement. "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."
Update: American Apparel sent an email blast reassuring customers that in spite of the news, everything will be business as usual at AA stores:
You might have heard a rumor that your favorite purveyor of basics, hoodies, catsuits and booty shorts is going through some changes.
A financial restructuring is taking place and follows a path of people and businesses including 50 Cent, American Airlines, and Bloomingdale’s, that continue to thrive as successful brands. It is business as usual at American Apparel and we are as excited as ever to bring you great fashion basics. Our stores are open, e-Commerce orders will continue to be fulfilled, your gift cards will still be honored, and all of our standard policies regarding returns, exchanges, etc., will remain in effect. There is also no change to Le Club and members will retain their status, points, and benefits.
American Apparel will emerge as a stronger, more vibrant company for the benefit of all of our customers. The restructuring process will provide the Company with the funds it needs to purchase materials for new products, and to continue producing fashion-forward, iconic apparel. We look forward to continuing to serve you as America’s largest domestic clothing manufacturer, providing Fashionable Basics, Sweatshop Free, and Made in the U.S.A. Stay tuned for updates on our website and at your nearest American Apparel location for what products we will have in store this Halloween.
As always, thank you for your business, support, and loyalty to our brand. Should you have any questions about the restructuring, you can access more information by visiting www.gardencitygroup.com/cases/AAI or by calling the following hotline: 877-940-7795. Please see our company press release for more information.
All the best, American Apparel Digital & Retail Teams
Update: On Tuesday, Bloomberg reported that US Bankruptcy Judge Brendan Shannon granted permission for American Apparel to tap into $90 million in loans. The decision will allow AA to begin to take care of its bills, including making payroll.