American Apparel Announces Restructuring Plan To Reduce Debt, Interest Payments
American Apparel, Inc. (UPIC: AMER9421) announced Monday that it had reached a restructuring support agreement with 95 percent of its secured lenders to implement a pre-arranged financial restructuring. This reorganization will enable the Los Angeles, California-based supplier to implement a comprehensive transformation strategy to revitalize the business and brand, while keeping its production and operations in the U.S. Throughout this process, American Apparel vows to operate its business without interruption to customers, employees or vendors.
The restructuring support agreement, which has been approved by the company's board of directors, is intended to 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 business, and provide American Apparel with access to financing during and after its restructuring. As part of this agreement, the supplier, 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 company expects to complete the restructuring within approximately six months.
“This restructuring will enable American Apparel to become a stronger, more vibrant company,” says Paula Schneider, American Apparel’s CEO. “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 says that such financing will be more than sufficient to fund its ongoing operations and pave the way for a successful reorganization. The company says 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. American Apparel's international operations are not affected by the reorganization in the U.S.
Schneider adds, “This process will ultimately benefit our employees, suppliers, customers and valued partners. American Apparel is not only an iconic clothing brand but also the largest apparel manufacturer in North America, and we are taking this step to keep jobs in the U.S. and preserve the ideals for which the company stands. In partnership with our bondholders, we can work towards a new future for the company and concentrate on what matters: making and selling great clothing.”