American Apparel Bankruptcy Deal: Senior Creditors Will Own New Firm

American Apparel Bankruptcy Deal: Senior Creditors Will Own New Firm

Fashion firm American Apparel is apparently ready to move forward from its bankruptcy.

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According to the Daily Bankruptcy Review, attorney’s for the firm laid out the clothing manufacturers “survival plan“, which would provide $10 million in cash while execs work to resolve inventory issues at its stores.

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Based on a plan filed in court last Thursday, the LA-based firm plans to exit bankruptcy with a $30 million loan and a much-reduced debt load, and will be owned by its current senior creditors. The filing argued that the fresh start will give management an opportunity to revamp the stale inventory currently on display in stores, get more popular seasonal items on the shelves and work on the marketing of top-selling products.

The clothing retailer initially filed for bankruptcy two weeks ago today, reporting a staggering $300 million in losses over the last five years.

American Apparel’s filing noted it “[maintained] significant style diversity without any real benefit” as only a few dozen of its more than 5,000 styles represented the vast majority of sales.

Details on American Apparel bankruptcy plan

Of note, under the reorganization plan, over $200 million in senior bond debt will be exchanged for ownership of the restructured clothing retailer.

The plan also calls for the canceling of American Apparel’s stock (trades under APPCQ in OTC markets). The share price of the company, which topped out at $15.80 in late 2007, was trading at around 11 cents per share just before the early October bankruptcy filing.

American Apparel ‘s unsecured creditors, who are currently owed close to $150 million will divide up any legal proceeds won by the firm following bankruptcy, although the targets of any potential lawsuits were not specified.

Keep in mind that American Apparel creditors can still vote to reject the plan. The flings requests that the judge to set a voting deadline of January 7th for the reorganization plan.

No store closings are called for by the restructuring plan, but company execs did say they were in the process of negotiating less expensive leases with some landlords, and may request the bankruptcy court to void some real-estate contracts.

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