American Apparel Said to Be Preparing for Second Bankruptcy

(Bloomberg) -- American Apparel Inc. is preparing for its second bankruptcy filing in as many years, according to people familiar with the situation, capping a tumultuous stretch that included tumbling sales, red ink and a split with controversial founder Dov Charney.

The filing may come as soon as the next few weeks, according to the people, who asked not to be identified because the discussions aren’t public. The move could help set the stage for a sale of the Los Angeles-based company by letting it exit leases and shutter part of the retail operation, according to the people. Still, the plan isn’t yet final and could change as the holiday season approaches.

The clothing maker only emerged from bankruptcy in February, when former bondholders -- led by Monarch Alternative Capital -- took over the company. A turnaround plan to return to American Apparel’s roots and focus on basic items like T-shirts and skirts didn’t improve results enough, according to the people. The company also has hired restructuring firm Berkeley Research Group for guidance, the people said.

Representatives for Monarch and Berkeley Research Group didn’t immediately respond to a request for comment, while American Apparel declined to comment.

The past couple of years have been rife with retail bankruptcies, including Aeropostale Inc., Quiksilver Inc. and Sports Authority Inc. Clothing companies have been hit particularly hard because many shoppers are shifting their dollars to experiences, technology and entertainment.

Seeking Buyers

American Apparel hired investment bank Houlihan Lokey earlier this year to consider a sale after receiving interest, according to the people. The potential buyers are mainly interested in the company’s wholesale unit and the brand, they said. That leaves its roughly 200 retail stores in limbo. But one person said some potential acquirers view the locations as an attractive part of the company and only want to close some of them.

The company also is dealing with management turnover. Chief Executive Officer Paula Schneider, who took charge after the ouster of Charney, resigned in September. She is now CEO of apparel maker DG Premium Brands. General Counsel Chelsea Grayson, a former mergers and acquisitions lawyer, has taken Schneider’s place.

Charney, the company’s founder and longtime CEO, was fired in 2014 over allegations of misconduct. He then fought to regain control of the business, including working with an investor group on a takeover offer of more than $200 million. But the 47-year-old’s bid was unsuccessful. American Apparel’s results only got worse under Schneider, and it filed for bankruptcy in October 2015.

Reuters reported earlier this month that Brand licensors Authentic Brands Group LLC and Iconix Brand Group Inc. have expressed interest in acquiring American Apparel, negotiations that could lead to a bankruptcy.

--With assistance from Jodi Xu Klein To contact the reporters on this story: Kiel Porter in New York at kporter17@bloomberg.net, Lauren Coleman-Lochner in New York at llochner@bloomberg.net, Matt Townsend in New York at mtownsend9@bloomberg.net. To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net, Kevin Orland