Scarinci Hollenbeck, LLC, LLCScarinci Hollenbeck, LLC, LLC

Firm Insights

American Apparel Files for Chapter 11 Bankruptcy Protection

Author: Joel R. Glucksman

Date: October 29, 2015

Key Contacts

Back

On Oct. 5, American Apparel, one of the largest clothing retailers in the country, announced that it had filed for Chapter 11 bankruptcy protection, according to USA Today. Following a rapid decline in sales since 2011, the company sought bankruptcy protection after it became insolvent.

American Apparel declines into debt

In court papers, American Apparel cited an increase in competition from lower-cost retailers like H&M and Forever 21 that captured more of the market share for millennials. According to a Fast Company report, the company also stated that its business model designed around clothing made in the U.S. was a factor in its revenue dropping in five consecutive years.

American Apparel stated in bankruptcy documents that it had lost more than $300 million in revenues from 2009 to 2014. Since last year, the company has restructured its business model to reduce costs and streamline product offerings. However, the changes have not prevented the company from realizing losses, as its sales revenue slumped by 17 percent to $134.4 million this year, which dropped its market value to only $20.5 million.

One of the main issues cited in American Apparel’s bankruptcy petition was that it had failed in seasonal planning, which resulted in offering the same clothes all year round. Another major issue was the fact that the company had only received 11 percent of sales revenues online, whereas competitors averaged approximately 20 percent.

The company listed assets of $199.3 million, with $397.6 million in debts, including $15 million owed to its largest creditor, Standard General LP, according to an American Lawyer report. American Apparel also cited $38.4 million outstanding on its credit facility, with only $6.9 million in cash on hand.

The company’s reorganization plan calls for a debt-for-equity deal

The company said in its court filings that it will need to close several underperforming store locations because it has only kept them open due to recent cash infusions. American Apparel has also secured $90 million in financing from secured creditors to maintain operations through the bankruptcy period.

The proposed restructuring plan, subject to court approval, calls for a debt-for-equity exchange, where $200 million in senior secured notes will be converted into equity shares. American Apparel negotiated a deal with 95 percent of its secured creditors to reduce its $300 million debt load to $135 million.

The company plans to emerge from the restructuring process as a viable business in the U.S., although its international locations will remain unaffected.

The significance of the filing is a disturbing industry trend

American Apparel’s Chapter 11 filing is the latest in a recent trend of teen fashion retailers that have sought bankruptcy protection. Competitors like Wet Seal, Cache Inc., Deb Shops, Body Central Corp. and dELiA’s have filed for Chapter 11 bankruptcy protection this year. Even its competitors H&M and Forever 21 have struggled in recent years due to online retailers like Amazon.com Inc. undercutting store locations.

Are you a creditor in a bankruptcy?  Have you been sued by a bankrupt?  If you have any questions about your rights, please contact me, Joel Glucksman, at 201-806-3364.

No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.

Scarinci Hollenbeck, LLC, LLC

Related Posts

See all
How to Dissolve a Corporation in New Jersey: A Step-by-Step Guide post image

How to Dissolve a Corporation in New Jersey: A Step-by-Step Guide

Closing your business can be a difficult and challenging task. For corporations, the process includes formal approval of the dissolution, winding up operations, resolving tax liabilities, and filing all required paperwork. Whether you need to understand how to dissolve a corporation in New York or New Jersey, it’s imperative to take all of the proper […]

Author: Christopher D. Warren

Link to post with title - "How to Dissolve a Corporation in New Jersey: A Step-by-Step Guide"
Gross Lease vs. Net Lease: Understanding the Key Differences post image

Gross Lease vs. Net Lease: Understanding the Key Differences

Commercial leases can take a variety of forms, which is often confusing for both landlords and tenants. Understanding the different types, especially the gross lease structure, is important when selecting the lease that best suits your needs. One key distinction between lease types is how rent is calculated and paid. This article addresses the two […]

Author: Robert L. Baker, Jr.

Link to post with title - "Gross Lease vs. Net Lease: Understanding the Key Differences"
What to Do If You Are Impacted by a Retailer Bankruptcy Part 2 post image

What to Do If You Are Impacted by a Retailer Bankruptcy Part 2

Over the past year, brick-and-mortar stores have closed their doors at a record pace. Fluctuating consumer preferences, the rise of online shopping platforms, and ongoing economic uncertainty continue to put pressure on the retail industry. When a retailer seeks bankruptcy protection, a myriad of other businesses are often impacted. Whether you are a supplier, customer, […]

Author: Brian D. Spector

Link to post with title - "What to Do If You Are Impacted by a Retailer Bankruptcy Part 2"
The Current Administration's Proposals for the Financial Services and Banking Industries Will Affect Your Business post image

The Current Administration's Proposals for the Financial Services and Banking Industries Will Affect Your Business

Since his inauguration two months ago, Donald Trump’s administration and the Congress it controls have indicated important upcoming policy changes. These changes will impact financial services policies and priorities. The changes will particularly affect cryptocurrency, as well as banking rules and regulations. Key Regulatory Changes in Cryptocurrency For example, in the burgeoning cryptocurrency business environment, […]

Author: Dan Brecher

Link to post with title - "The Current Administration's Proposals for the Financial Services and Banking Industries Will Affect Your Business"
Tips for Commercial Landlords Impacted by Wave of Retailer Bankruptcies Part 1 post image

Tips for Commercial Landlords Impacted by Wave of Retailer Bankruptcies Part 1

The retail sector has experienced a wave of bankruptcy filings over the last year. Brick-and-mortar businesses in financial distress include big-name brands like Big Lots, Party City, The Container Store, and Vitamin Shoppe. When large retailers seek bankruptcy protection, they are not the only businesses impacted. Landlords can be particularly hard hit. While commercial landlords […]

Author: Brian D. Spector

Link to post with title - "Tips for Commercial Landlords Impacted by Wave of Retailer Bankruptcies Part 1"

No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.

Sign up to get the latest from our attorneys!

Explore What Matters Most to You.

Consider subscribing to our Firm Insights mailing list by clicking the button below so you can keep up to date with the firm`s latest articles covering various legal topics.

Stay informed and inspired with the latest updates, insights, and events from Scarinci Hollenbeck. Our resource library provides valuable content across a range of categories to keep you connected and ahead of the curve.

Let`s get in touch!

* The use of the Internet or this form for communication with the firm or any individual member of the firm does not establish an attorney-client relationship. Confidential or time-sensitive information should not be sent through this form.

Sign up to get the latest from the Scarinci Hollenbeck, LLC attorneys!

Please select a category(s) below: