American Apparel has reached a pre-arranged debt for equity restructuring agreement with 95 percent of its secured lenders after filing for Chapter 11 bankruptcy protection on Monday.
Coliseum Capital Management, Goldman Sachs Asset Management, Monarch Alternative Capital and Pentwater Capital Management have agreed to convert more than $200 million of outstanding 13 percent senior notes issued in 2013 into equity. The firms are also providing American Apparel with $90 million debtor-in-possession (DIP) financing to allow it to continue operations.
The DIP facility comprises a new $30 million term loan and $60 million of existing secured indebtedness, converted into DIP financing. The four-year loan is set to pay a 10 percent cash margin with a 2 percent payment-in-kind on top, according to documents filed with the court.
The restructuring agreement is subject to court approval. The case is being heard in Delaware.
The senior lenders have also put $70 million in equity into the firm to recapitalise the business, the company said. The deal reduces American Apparel’s debt load from $300 million to $135 million and cuts the brand’s annual interest expense by $20 million. The restructuring is expected to complete within six months.
“This restructuring will enable American Apparel to become a stronger, more vibrant company. By improving our financial footing, we will be able to refocus our business efforts on the execution of our turnaround strategy as we look to create new and relevant products, launch new design and merchandising initiatives, invest in new stores, grow our e-commerce business, and create captivating new marketing campaigns that will help drive our business forward,” said Paula Schneider, American Apparel's chief executive.
The company has already announced a turnaround plan focused on better product selection, cost cutting, increased supply chain efficiency as well as maximising sales.
The clothing maker’s woes have been tied to a combination of falling revenues and negative investor sentiment. The firm has been criticised in the past for racy advertising campaigns which used sexualised imagery of underage-looking models. That branding was tied to founder and former chief executive Dov Charney who was ousted in June last year amid allegations of misconduct in his interactions with employees. Charney has since slapped the firm with a string of lawsuits.
In its restructuring announcement, American Apparel committed itself to creating marketing campaigns that are positive, inclusive and socially conscious.
Jones Day is acting as American Apparel’s legal advisor. FTI Consulting serves as restructuring advisor and Moelis & Company is acting as investment banker.