Dive Brief:
- American Apparel is preparing for its second Chapter 11 bankruptcy filing in roughly a year, with multiple sources telling Bloomberg the filing could come as soon as the next few weeks.
- A bankruptcy could make the Los Angeles-based apparel retailer more appealing to a buyer, as it would allow American Apparel to let go of leases and shutter part of its operations. Brand licensors Authentic Brands Group LLC and Iconix Brand Group Inc. have already expressed interest in an acquisition, according to reports earlier this month.
- American Apparel, which emerged from bankruptcy as a private company in February under the watch of bondholders led by Monarch Alternative capital, has brought in strategic advisory firm Berkeley Research Group to oversee its restructuring efforts, sources told Bloomberg.
Dive Insight:
American Apparel hasn’t been able to get its feet on solid ground since the blowout from its controversial split from founder Dov Charney, who was ousted by the board in 2014 in a cloud of controversy so public that he was lampooned on "Saturday Night Live." Charney attempted to buy back his company last December, without success.
Through the first Chapter 11 process, American Apparel converted some $230 million of bonds into equity, left with $40 million of exit capital, and had a commitment for $40 million in asset-backed financing. Its interest costs were pared down by $20 million. Following the bankruptcy, former CEO Paula Schneider (who stepped down last month and recently joined Delta Galil as the CEO of DG Premium Brands) put in place a turnaround plan focused on basics like T-shirts and skirts. During her time as CEO, she also oversaw massive layoffs and cost-cutting measures, such as overtime pay, which provoked backlash from employees.
In an interview with Fortune earlier this month, Schneider said she decided to leave American Apparel after the board hired Houlihan Lokey to explore a sale of the company. Women’s Wear Daily also reported that investor Ron Burkle’s Yucaipa Cos. probed the embattled retailer's finances. Many observers suggest that a sale of American Apparel could mean uprooting the L.A.-based retailer and moving it overseas, something that both Charney and Schneider have adamantly opposed.
Despite its mounting debt and failed turnaround plans, American Apparel's brand has remained robust enough to pique the interest of several brand licensors, which means it’s likely not the end of the road for the retailer. American Apparel has not responded to requests for comment on the latest reports.
