American Apparel files for bankruptcy

Clothing chain American Apparel, filed for Chapter 11 bankruptcy protection early Monday.

Over the last one year, the Los Angeles-based company has been in the midst of a turnaround effort. It amassed huge legal bills from lawsuits with controversial founder Dov Charney who was fired in December following allegations that he had violated its sexual harassment policy. In August AA had warned that it had "substantial doubt" of its staying in business and that investors could suffer big losses on their investments.

The filing is no surprise after the company reported a $19.4m loss in the second quarter of this year (its 10th consecutive quarterly loss) as sales dropped 17% while the company was shelling out at least $10 million a quarter in interest expenses. American Apparel listed $199.3 million in assets and $397.6 million in debt. By declaring bankruptcy, American Apparel plans to restructure its debt in the next six months.

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. Lenders will also provide some $90 million in debtor-in-possession financing, plus $70 million in new financing. The result will be a reduction in American Apparel's debt from $300 million to no more than $135 million, the company said.

The company also said that its retail stores, wholesale and U.S. manufacturing operations will continue without interruption "This restructuring will enable American Apparel to become a stronger, more vibrant company," Schneider said Monday 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."