American Apparel, the onetime arbiter of made-in-America cool, filed for bankruptcy protection early Monday, its business crippled by huge debts, a precipitous fall in sales, employee strife and a drawn-out legal battle with the retailer’s ousted founder, Dov Charney.
The Chapter 11 petition, approved by the board, was filed in federal bankruptcy court in Delaware. The filing followed a deal struck with most of American Apparel’s secured lenders to reduce the retailer’s debt through a process known as a debt-for-equity conversion, where bondholders swap their debt for shares in the company.
The deal, which includes extra financing from the participating bondholders, would enable American Apparel to keep its manufacturing operations in Los Angeles and its 130 stores in the United States open, the company said.
No layoffs were announced in the filing, which still requires approval by the bankruptcy court. The retailer’s overseas operations are unaffected by the restructuring, which American Apparel expects to complete within six months.
Our debt load simply wasn’t sustainable. You can’t do a turnaround plan without cash,” Ms. Schneider said. “Every day, we would make choices on what we were going to buy, even though we needed more for everyone. Every day, I have to pick between what I’m buying for retail or wholesale, or giving e-commerce enough money to develop a mobile app,” she said.
“And it was all to get to the point where we could make these massive interest payments, and nothing that was really moving the company forward,” she said. “Not having the nuisance lawsuits, not having this massive debt, these are all extremely important things for the company to thrive.”
It is a stark turn of events for a retailer that began as a T-shirt label in 1989 and whose bodysuits and disco pants came to define the alternative look of the 1990s and early 2000s. The retailer’s commitment to keeping local garment jobs in Los Angeles, and its championing of progressive causes from immigration reform to marriage equality, also set it apart from its retail peers.
Behind the energy of those early years was Mr. Charney, the kinetic executive whose lifestyle seemed to embody American Apparel’s anti-establishment flair. But soon, the founder’s antics appeared to cross a line.
A 2004 profile in the magazine Jane described Mr. Charney repeatedly masturbating in front of the reporter. Other articles quoted Mr. Charney calling women “sluts,” and suggesting that “ugly” store managers be fired. A series of lawsuits against Mr. Charney made claims of sexual harassment of female employees. Mr. Charney’s lawyers steadfastly maintained, however, that the accusations were unfounded and that the founder was a deep-pocketed target for litigation.