American Apparel files for bankruptcy

The Los Angeles-based clothing manufacturer and retail chain has been struggling with shrinking sales and an outsize store footprint

US clothing company, American Apparel Inc. filed for bankruptcy protection on Monday, a media report said.

The Los Angeles-based clothing manufacturer and retail chain has struggled with shrinking sales and an outsize store footprint, as well as litigation tied to founder Dov Charney, who left the company in December. The case was filed in the US Bankruptcy Court in Delaware, the Wall Street Journal reported.

American Apparel has planned to restructure its debt and creditors have committed $70 million of new capital to support the reorganisation and recapitalisation of the business, the company said in a statement.

"The restructuring support agreement, which has been approved by the company's board of directors, will substantially reduce the company's debt and interest payments through the elimination of over $200 million of its bonds in exchange for equity interests in the reorganized company," it said.

The agreement would provide the company with access to financing during and after its restructuring. The deal would reduce its $300 million debt to no more than $135 million, and cut its annual interest expense by $20 million, the statement added.

According to company sources, retail stores, wholesale and US manufacturing operations would continue without interruption and international stores were not affected. It was clear whether stores would shut down.

Shares of American Apparel, which peaked at $15.80 in December 2007, finished on October 2 at 11 cents.

American Apparel was founded in 1989. It is famous for making basic, solid-colour cotton knitwear such as T-shirts and underwear, but in recent years it has expanded to include leggings, leotards, tank tops, vintage clothing, dresses, pants and denim.

The company is also famous for its bold, sexually charged advertising campaigns.