American Apparel (APP) filed for Chapter 11 bankruptcy protection early Monday. The move doesn’t come as a surprise considering the company said in August it “may not have sufficient liquidity necessary to sustain operations for the next twelve months”.
Under the terms of the agreement, American Apparel said its secured lenders will provide about $90 million in debtor-in-possession financing, and have committed $70 million of new capital to support the recapitalization of the business. The struggling company also said it expects to cut its debt from $300 million to no more than $135 million, and that the deal, which will lower the company’s annual interest expense by $20 million, will eliminate more than $200 million of bonds in exchange for equity in the reorganized company.
The Los Angeles-based teen apparel retailer noted that the deal struck with most of its secured lenders would enable it to keep its manufacturing operations in LA and its 130 stores in the United States open.
“By improving our financial footing, we will be able to refocus our business efforts on the execution of our turnaround strategy,” Chief Executive Paula Schneider stated in a press release.
American Apparel expects to complete the restructuring within six months.