Less than a year after emerging from bankruptcy under new leadership, American Apparel has again filed for Chapter 11 protection, and this time the specter of large-scale layoffs is looming.
The filing came just after midnight Eastern Standard Time on Nov. 14. The company faced a $2 million payment due the next day to FTI Consulting Inc., likely spurring the filing, according to several sources who asked not to be named because they weren’t authorized to speak publicly. American Apparel had been exploring a sale to several branding firms in recent weeks but couldn’t find a buyer.
In its filing in Delaware bankruptcy court the downtown clothing manufacturer and retailer said it had $230 million in debt. A declaration filed by the company’s restructuring chief, Mark Weinsten, said American Apparel is seeking to auction off its assets by the end of the year.
The company does have a $66 million stalking-horse bid in place from Canadian clothing manufacturer Gildan Activewear. Gildan’s bid is for American Apparel’s intellectual property and a least some portion of its wholesale business. Gildan also “negotiated for the opportunity,” according to Weinstein’s declaration, to maintain some or all of American Apparel’s manufacturing, distribution, and warehouse operations in Los Angeles.
Bradley Scher, American Apparel’s chairman, told employees in a letter obtained by the Business Journal that Gildan’s potential acquisition of parts of the company was a way to keep the brand alive.
“We are confident that this decision is the best strategic move forward, in order to preserve the legacy of the American Apparel brand,” Scher’s letter reads.
A company representative declined to comment.
American Apparel, which laid off approximately 500 employees from its estimated Southern California workforce of 4,600 earlier this year, according to an April Los Angeles Times story, could lay off an additional 3,400 workers in Los Angeles in the next 60 days, according to three Worker Adjustment and Retraining Notifications (Warn notices) filed with the state’s Employment Development Department last week.
The notices show the bulk – 2,166 – would be laid off from American Apparel’s downtown factory. As many as 959 employees from the company’s South Gate plant and another 332 from Garden Grove could get the ax as well.
In a measure of how quickly the business has shrunk, the company’s last public filing before it when into bankruptcy in October of last year and was taken private showed America Apparel had about 8,000 employees worldwide.
A company source who asked not to be identified because they were not authorized to speak publicly said the notifications were sent to the state as a precautionary measure before the Gildan deal was in place.
“The Warn notices were a proactive, preemptive measure,” the source said. “Originally, one of the deals we were entertaining did not include L.A. manufacturing.”
Some observers said that while Gildan might hold on to some manufacturing in Los Angeles, that was far from certain, citing the wording in American Apparel’s filing.
“They paid lip service to keeping manufacturing in L.A.,” said Greif & Co. Chief Executive Lloyd Greif. “They want to control employee exits on their own terms. If people start bailing left, right, and center, there could be product shortfalls that disrupt existing business between now and closing.”
The Weinsten declaration filed in Delaware court details the company’s spectacular decline since it fired American Apparel founder Dov Charney in December 2014. Even after October 2015’s initial bankruptcy filing, which helped reduce the company’s $300 million in debt and streamline operations, American Apparel continued to hemorrhage money.
Year-over-year sales are down more than 32 percent thus far, according to the declaration, and the company’s earnings before interest, taxes, depreciation, and amortization declined by a whopping $40 million from 2015.
The company only stayed afloat this year for as long as it did by leaning heavily on lenders that supplied it with additional capital – some $122 million, according to filings.
American Apparel lists New York-based Monarch Capital Group as its largest shareholder, with more than 41 percent of the company controlled through various Monarch funds. Goldman Sachs, with more than 20 percent, is listed as the next-biggest equity stakeholder.
The biggest unsecured creditor listed in the company’s bankruptcy filing is U.K.-based Standard General, which is owed more than $15 million by the company. FTI’s $2 million is the second-biggest unsecured sum.
The bankruptcy filing comes 13 months after the company last sought protection in the wake of several years of declining sales and the Charney management shake-up. The company was able to put a plan together an exit plan in February, but it appears the initial restructuring wasn’t enough to overcome the steep decline in sales.
