American Apparel files for second bankruptcy in just over a year

American Apparel LLC filed its second bankruptcy in just over a year on Monday, after struggling to overcome mounting losses, intense competitive pressures among U.S. teen retailers and a rocky chapter under its controversial founder Dov Charney.

As part of its bankruptcy, the iconic retailer, one of the largest clothing manufacturers in the U.S., plans to sell its brand and some assets to Gildan Activewear Inc.

The Canadian clothing manufacturer's approximately $66 million bid will set the floor for other potential offers in a court-supervised auction that American Apparel wants to hold on Dec. 21.

Gildan's offer for American Apparel does not include the company's 110 retail and outlet stores in the U.S. A buyer for those stores, which will remain open through the bankruptcy, may emerge in the auction.

At least eight U.S. teen retailers, including Wet Seal LLC and Pacific Sunwear of California Inc, have filed for bankruptcy in the past two years, as the spending habits of young people shift and they visit shopping malls less often.

American Apparel filed its first bankruptcy last year, amid a $300 million debt load, excess inventory and millions in legal liabilities stemming from the former chief executive Charney, who was ousted in 2014 because of misconduct.

After defeating a proposal from Charney to buy back the company, American Apparel emerged in February owned by former bondholders, led by hedge fund Monarch Alternative Capital LP.

They had an aggressive plan to turnaround the business but those efforts failed and American Apparel saw a nearly 33 percent decline in sales, according to court papers filed on Monday. Lenders and investors in the company expect to recover a fraction of the money they advanced, court documents say.

American Apparel has close to 6,000 employees, according to a transcript from a court hearing last week.

"Everyone will continue to come to work, do their jobs and get paid on each payday," American Apparel Chairman Bradley Scher said in a letter obtained by Reuters. "Wages, hours and benefits will remain the same."

Part of American Apparel's troubles stem from its plant in costly Los Angeles, but the company has insisted any deal keep manufacturing in the United States.

Gildan spokesman Garry Bell said on Monday that the company would be evaluating the physical property and the organization itself before making a decision on the factory, which it has the option to keep.

"We need to, and we will be doing an evaluation of the equipment and the assets that are actually included in our agreement in the coming days," Bell said.

"As we enter into this agreement, we inherently believe and recognize the value of the American Apparel brand stems from their strong heritage as a made-in-the-USA product. And at this point, it is our intent to maintain that approach."

American Apparel hired investment bank Houlihan Lokey in July to explore a sale. Before inking a deal with Gildan, the company was in discussions with brand licensor Sequential Brands Group Inc as well as financial services company B. Riley Financial Inc.

Those talks came after brand licensor Authentic Brands Group LLC stalled on a possible deal.

Authentic Brands led a consortium that acquired Aeropostale Inc, also prized for its brand, in a bankruptcy court auction in September.

American Apparel said last week it was winding down its operations in the UK. The U.S. proceeding - a so-called "Chapter 22," a play on words for a second Chapter 11 - is separate.

Reuters first reported that American Apparel would file for bankruptcy as soon as Monday. The company listed assets and liabilities in the range of $100 million to $500 million, according to its Delaware court filing.

It also secured a $30 million bankruptcy loan. Without it, the company does not have enough cash to operate for more than a week and will have to liquidate, according to a court filing.

The case is in the U.S. Bankruptcy Court for the District of Delaware, case number 16-12551.