American Apparel (APPCQ) has filed for chapter 11 bankruptcy protection again less than a year after emerging from a previous round of bankruptcy protection. Its British outlets were placed into the equivalent of chapter 11 bankruptcy protection earlier this month. American Apparel will continue to run its business as usual in the United States. Bradley Scher, chairman of American Apparel’s board of directors, said that the bankruptcy filing would have no noticeable effect on day-to-day operations in the United States.
In a letter to employees, Scher said, “We are confident that this decision is the best strategic move forward, in order to preserve the legacy of the American Apparel brand.” American Apparel listed assets and liabilities in the range of $100 million to $500 million. The company reports that it has lined up $30 million in bankruptcy financing.
The beleaguered U.S. retailer also announced that it has reached a deal to sell its intellectual property rights and some assets to Gildan Activewear Inc. According to court filings, the Gildan deal covers intellectual property, wholesale inventory and “certain American Apparel manufacturing and distribution facilities.” The Gildan deal will net American Apparel about $66 million in cash.
The closing of the deal is subject to regulatory approvals and customary conditions. The deal is expected to close during the first quarter of 2017. The Canadian company expects the deal to expand its revenue growth opportunities. Gildan said in its statement that it won’t be purchasing any retail store assets but will separately purchase inventory from American Apparel.
Monday’s filing was submitted to the court that oversaw the last chapter 11 proceeding, the U.S. Bankruptcy Court in Wilmington, Del. The bankruptcy filing allows American Apparel to hold an auction for its assets and business. Gildan’s proposed acquisition would constitute the initial bid. The purchase is conditional on Gildan winning the auction, and if the deal falls through, it will receive a break-up fee.
The second filing comes weeks after a management shake-up. American Apparel Chief Executive Paula Schneider left the company last month, less than two years after replacing Dov Charney, the company’s founder and former CEO. Mr. Charney, who founded American Apparel as a wholesale T-shirt business in 1998, was ousted in December 2014 over allegations of misconduct.
American Apparel initially filed for chapter 11 in October 2015 after grappling with shrinking sales, an outsize store footprint, and sexual-harassment litigation related to its founder. It shed $200 million in debt and emerged from bankruptcy in February under the ownership of a group of former bondholders. American Apparel hired investment bank Houlihan Lokey earlier this year to explore a sale. At least eight U.S. teen retailers have filed for bankruptcy in the past two years, including Aeropostale, Wet Seal, and Pacific Sunwear of California.