American Apparel Files For 2nd Bankruptcy

Posted by John P. Bradford // November 15, 2016

NEW YORK (Reuters) – American Apparel LLC filed for its second bankruptcy protection in just over a year on Monday, weighed down by intense competitive pressures facing U.S. teen retailers and a rocky relationship with its founder.

The second bankruptcy comes as the retailer struggles to overcome years of losses and rising online competition. The company became a part of popular culture for its racy advertising and mercurial founder, Dov Charney.

American Apparel, known as much for its sexually charged advertising, listed assets and liabilities in the range of $100 million to $500 million, according to a Delaware court filing.

Separately, Canadian apparel maker Gildan Activewear Inc said it agreed to buy intellectual property rights related to the American Apparel brand and certain assets from American Apparel for about $66 million in cash.

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Gildan will not be purchasing any retail store assets, it said in a statement.

The bankruptcy filing allows American Apparel to hold an auction for its assets and business under which Gildan’s proposed acquisition would constitute the initial bid.

“Gildan has asked for the opportunity to maintain certain of our manufacturing, distribution and warehouse operations in and around Los Angeles,” American Apparel Chairman Bradley Scher said in a letter to employees, a copy of which was obtained by Reuters.

Throughout the competitive sale process, American Apparel will run its business as usual in the United States and this will have no noticeable effect on day-to-day operations in the United States, Scher said in the letter.

Dov Charney, American Apparel’smercurial founder, was ousted in 2014.

American Apparel has been scouting for a buyer, and began discussing a possible sale with brand licensor Sequential Brands Group Inc as well as financial services company B. Riley Financial Inc after talks with brand licensor Authentic Brands Group LLC stalled.

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The company said last week it was winding down its operations in the UK. The U.S. proceeding – a so-called “Chapter 22,” a play on words for a second Chapter 11 – is separate.

American Apparel filed its first bankruptcy in October 2015 following a steep drop in sales and drawn out legal battle with Charney, who was ousted in 2014. It emerged from bankruptcy in February under the ownership of a group of former bondholders led by hedge fund Monarch Alternative Capital LP.

Still, it continued to face declining sales, exacerbated by its costly manufacturing plant in Los Angeles. Under mounting pressure, American Apparel hired investment bank Houlihan Lokey earlier this year to explore a sale. [L1N1AY224]

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The company has insisted that any deal keep its manufacturing plant in the United States.

At least eight U.S. teen retailers, including Wet Seal LLC and Pacific Sunwear of California Inc, have filed for bankruptcy in the past two years, as the spending habits of young people shift and they visit malls less often.

The case is in the U.S. Bankruptcy Court for the District of Delaware, case number 16-12551.

American Apparel Files For 2nd Bankruptcy