American Apparel Bankruptcy 2.0

Here we go again.

Recent reports indicate that American Apparel enjoyed filing for bankruptcy so much the first time that it is going to give it another go.

Bloomberg is reporting that bankruptcy number two could be coming down the pipe in the next few weeks.

This will mark the second such filing AA has made this year and would come with the benefit of allowing the long-suffering firm to let go of various leases and close down nonfunctional organizational parts. Brand licensers Authentic Brands Group LLC and Iconix Brand Group Inc. have already expressed interest in an acquisition — if reports from early this month are accurate.

AA left bankruptcy last April a private firm and is now working with strategic advisory firm Berkeley Research Group to oversee its restructuring efforts, sources told Bloomberg.

Though hot among younger consumers for the first few years of the new millennium, AA has been hit hard by diminishing consumer interest and a PR scandal centered around Founder and former CEO Dov Charney, whose antics were beloved by some and called criminal sexual harassment by others. Charney attempted to buy back his company last December, without success.

Chapter 11 process 1.0 allowed American Apparel to shift some of its $230 million of bonds into equity and left it with $40 million of exit capital, with a commitment for $40 million in asset-backed financing.

Following the bankruptcy, former CEO Paula Schneider put in place a turnaround plan focused on basics, like T-shirts and skirts. There were also massive layoffs and cost-cutting measures, such as overtime pay, which provoked backlash from employees.

What comes next is anyone’s guess, as the terms of bankruptcy number two won’t be known until a filing. Speculation is popular that the firm, under new ownership, will move production to China. Charney and Schneider both have adamantly opposed that move.

Despite its mounting debt and failed turnaround plans, American Apparel’s brand may live on — through licensers.


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