American Apparel files for bankruptcy

L.A.-based retailer planning to restructure following long history of financial trouble

American Apparel Inc., the made-in-the-U.S.A. clothing chain known for provocative marketing and boardroom drama, has filed for bankruptcy protection after years of losses and a feud with controversial founder, Montreal-born Dov Charney.

As part of a pre-arranged Chapter 11 restructuring, the Los Angeles-based company will reorganize its debts, which have ballooned to levels exceeding its assets.

More than $200 million (U.S.) of bonds will be exchanged for stock in the reorganized company, according to a statement on Monday. American Apparel will remain in business during the process.

Filing for bankruptcy is a “difficult decision that gives American Apparel the opportunity to rebuild the business,” said Bryan Roberts, an analyst with Kantar Retail. “Quite a few U.S. retailers have gone down this route and come out the other side.”

The move follows a clash between Charney and the board that led to his ouster last year for alleged misconduct — claims he says are baseless — but American Apparel’s financial woes stretch back longer. The chain has posted deficits every year since 2010.

Chronic losses strained its balance sheet to the point that, as of end of June, American Apparel had $161 million more liabilities than assets, meaning the company had a negative book value.

As part of the bankruptcy agreement, American Apparel will have access to financing after the restructuring, according to the statement. The debt reorganization, which may last about six months, is designed to provide relief.

“By improving our financial footing, we will be able to refocus our business efforts on the execution of our turnaround strategy,” chief executive officer Paula Schneider said in the statement. The company plans to create new products, introduce new design initiatives, invest in new stores and expand its e-commerce business, she said.