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Chapter 11 bankruptcy is clothing retailer's next step

Orlando residents who enjoy shopping at their city's local American Apparel store may be surprised to learn that the popular clothing chain has filed for Chapter 11 bankruptcy.

Fortunately, the retailer appears to have a debt reorganization plan in place that will allow it to continue operating. American Apparel has developed agreements with those creditors who are responsible for more than 95 percent of its secured debts to restructure, and, therefore, for the company to continue to operate and hopefully find its way back to profitability. The agreement will require court approval, and, if approved, will involve unsecured creditors receiving a $1 million cash payment and cash from a litigation trust.

The clothing retailer, which touts its made-in-the-U.S. products, has struggled in recent years and came close to a bankruptcy filing in 2011. In the five year period between 2009 and 2014, American Apparel lost approximately $300 million dollars. Of the more than $600 million in revenue it reported in 2014, 59% of that came from its retail store locations, with 12% coming from its online sales and 29% from wholesale transactions. Pursuant to its bankruptcy filing, the retailer has $397.6 million in debt compared to only $199.3 million in assets.

The retailer has 230 stores across the United States and in a number of foreign countries, and employs approximately 8,500 employees. According to court filings, the company does anticipate closing some of its retail locations, though it did not indicate which stores it would close.

It remains to be seen what the future holds for American Apparel, but fans of the 26 year old company will undoubtedly hope that this Chapter 11 bankruptcy filing is a step in the right direction.

Source: USA Today, "American Apparel files for Chapter 11 bankruptcy", Nathan Bomey, Oct. 5, 2015

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