American Apparel sees bright future after bankruptcy

WILMINGTON, Del (Reuters) - If American Apparel gets the bankruptcy turnaround it envisions, the fashion chain will soon have its most profitable years ever, according to court documents filed on Thursday.

A man walks past an American Apparel store in New York June 19, 2014. REUTERS/Brendan McDermid

In a filing Thursday with the U.S. Bankruptcy Court in Wilmington, Delaware, the company known for its sexually charged advertising projected it would return to profit in 2018, its first money-making year since 2009.

By 2020, the company projected a net profit of $23.7 million, well above its previous peak in 2007.

The company warned in the court filing that ongoing legal battles with Dov Charney, the founder who was fired as chief executive last year, remained one of the risks to its future. The company accused Charney of orchestrating protests at the headquarters and said he could undermine the ability to hire staff and executives.

Separately on Thursday, American Apparel sought to reassure suppliers and other creditors they were key to the future, even though they were going to get next to nothing for what the company owes them.

Scott Greenberg, one of the company’s bankruptcy attorneys, told the gathering of American Apparel’s creditors that the company was in Chapter 11 to lower crushing interest costs, not to end contracts with suppliers and landlords. “These relationships are critical to us,” he said.

The company said in court filings that its unsecured creditors, who are collectively owed about $145 million, will receive $1 million to split among them.

The creditors gathered in Wilmington, Delaware to form an official committee to represent their interests in the bankruptcy.

Official creditor committees play an important role by testing and challenging a company’s bankruptcy plan. The company will provide the creditors’ committee with a budget to hire attorneys and financial experts.

American Apparel has been dogged for years by changing spending habits among teen shoppers and has been embroiled in litigation related to Charney. The founder of the company was fired last year as chief executive after an internal investigation into potential misconduct, including allegations of sexual harassment.

An attorney for Charney has said Charney was never found to have committed sexual harassment. “He was fired because he wouldn’t relinquish control of his company,” said Keith Fink in a statement.

Charney, who is listed among the company’s creditors, did not appear at the creditors meeting.

The company plans to stabilize its finances by eliminating $200 million in bonds by granting the bondholders, a group of hedge funds, ownership of the company.

Reporting by Tom Hals in Wilmington, Delaware; Editing by Andrew Hay and Richard Pullin