2016 Newsmakers: American Apparel Could be Sold Off in Pieces

For the second time in a little more than one year, American Apparel headed to bankruptcy court while it searched for a buyer.

The largest clothing factory in the United States has had a bumpy ride since the middle of 2014 when its founder, Dov Charney, was sidelined and then months later let go from the company.

Coming in to right the ship at the beginning of 2015 was Paula Schneider, the veteran LA apparel executive called in to take over from Charney.

But no easy fix was found, and the garment maker headed to U.S. Bankruptcy Court for the first time, in October 2015, where it filed for Chapter 11 protection in Delaware.

The bankruptcy followed years of American Apparel losing money and increasingly borrowing more. For five years before filing for bankruptcy, the clothing company’s losses topped $340 million. In 2015, it was costing the company $40 million a year in interest payments.

With the bankruptcy filing, the company shed a boatload of crippling debt and emerged early this year as a private company under the control of several bondholders that swapped debt for shares in the company. American Apparel executives made predictions that American Apparel would be profitable by 2018.

But that never happened. In November, the company again filed for bankruptcy after CEO Schneider left for a new job. Court documents show that Gildan Activewear, a Canadian manufacturer of fashion basics, has agreed to pay $66 million for the intellectual-property rights to the American Apparel name as well as some of the company’s wholesale inventory. But other bids can still be made to the court by January. Gildan does not want to buy the company’s more than 100 U.S. stores, but those locations are also up for sale in a separate deal.

At this point, it is uncertain whether a new buyer will keep the 3,500 workers who are employed by American Apparel in the Los Angeles area. American Apparel said it notified workers that they could be laid off as soon as Jan. 6, but that could change if the new owners decide to continue manufacturing in Los Angeles.