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American Apparel store

American Apparel Seeks Bankruptcy Protection a Second Time

Nov. 14, 2016
American Apparel also agreed to sell the brand to Gildan Activewear Inc., a Canadian maker of T-shirts and underwear.

American Apparel Inc. filed for bankruptcy less than a year after ending its first stint under court protection, and agreed to sell the brand to Gildan Activewear Inc., a Canadian maker of T-shirts and underwear, for about $66 million.

American Apparel filed for protection from creditors Monday, Gildan said in a statement. The Montreal-based company said it’s not buying any stores.

As malls lose foot traffic and more Americans shop online, many U.S. retailers have struggled, with clothing companies hit particularly hard. Aeropostale Inc., Quiksilver Inc. and Pacific Sunwear of California Inc. filed bankruptcy in the last two years.

American Apparel’s founder, Dov Charney, was fired in 2014 over allegations of misconduct. He fought unsuccessfully to regain control of the business he started as a college student. American Apparel’s results only got worse, and it filed for bankruptcy in October 2015.

The retailer shed $200 million in debt and emerged from that bankruptcy early last year when former bondholders, led by Monarch Alternative Capital, took over. But a plan to return to the company’s roots and focus on basic items like T-shirts and skirts wasn’t enough to improve results.

The company ran into trouble just months later. Chief Executive Officer Paula Schneider, who took charge after Charney was forced out, resigned in September. Reports of a possible sale and a return to bankruptcy surfaced in October.

Gildan said it expects to complete the purchase in the first quarter, though the bankruptcy court may require American Apparel to hold an auction for the brand. In that case, the purchase is conditional on Gildan winning the auction, and if it doesn’t, it will receive a break-up fee.

By Steven Church

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Licensed content from Bloomberg, copyright 2016.

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