“American Apparel Files for Bankruptcy…”

American Apparel, the onetime arbiter of made-in-America cool, filed for bankruptcy protection early Monday, its business crippled by huge debts, a precipitous fall in sales, employee strife and a drawn-out legal battle with the retailer’s ousted founder, Dov Charney. 

The Chapter 11 petition, approved by the board, was filed in federal bankruptcy court in Delaware. The filing followed a deal struck with most of American Apparel’s secured lenders to reduce the retailer’s debt through a process known as a debt-for-equity conversion, where bondholders swap their debt for shares in the company.

The deal, which includes extra financing from the participating bondholders, would enable American Apparel to keep its manufacturing operations in Los Angeles and its 130 stores in the United States open, the company said. No layoffs were announced in the filing, which still requires approval by the bankruptcy court. The retailer’s overseas operations are unaffected by the restructuring, which American Apparel expects to complete within six months.

Still, the bankruptcy would wipe out American Apparel’s current shareholders, including Mr. Charney, whose stake in the retailer, which he founded in 1989, was worth about $8.2 million as of Friday. It would instead put the company’s creditors in full control, including Standard General, the little-known hedge fund that is also leading the turnaround at RadioShack, which went bankrupt in February.

American Apparel and RadioShack join numerous peers that have succumbed to intense retail competition. Some analysts say that the United States simply has too many brands — and too many brick-and-mortar stores — chasing consumer spending that is growing sluggishly at best.

Stores that cater to teenagers, like American Apparel, Abercrombie & Fitch and Aeropostale, have especially struggled in the face of an onslaught of “fast-fashion” labels and an increasingly fickle demographic more interested in the latest app or device than a pair of jeans. In the past year, Wet Seal, Deb Shops, Delia’s and Body Central have all gone under.

American Apparel’s own bankruptcy had become inevitable, as the retailer posted quarter after quarter of steep losses. Its sales fell 17 percent in the second quarter compared with last year, a slump attributed to a dearth of new styles. American Apparel’s losses over the last five years have topped $340 million, and it has lost $45 million more this year.

The New York Stock Exchange warned last week that American Apparel was at risk of being delisted, saying it had suffered losses so substantial, and its financial condition had become so impaired that it was questionable whether the retailer could stay in business. At the close of markets on Friday, its shares were worth just 11 cents.

A $13.9 million interest payment due on Oct. 15 had loomed large on the horizon; as of mid-August, American Apparel had just over $11 million in cash on hand. The shortfall prompted the company itself to warn it may not have enough capital to cover its costs over the next year.

Under the financing agreement, five American Apparel bondholders would convert some $200 million in bonds into equity in the reorganized company. Participating bondholders would also provide $90 million in debtor-in-possession financing, as well as $70 million in new liquidity.

The fresh financing would reduce American Apparel’s debt to $120 million from $311 million, and its annual interest expenses would fall by $24 million, the company said. The participating bondholders are Standard General, Monarch Alternative Capital, Coliseum Capital, Goldman Sachs Asset Management and Pentwater Capital Management, all hedge funds or investment firms specializing in distressed debt. Together, they represent 95 percent of the retailer’s secured lenders.

Bankruptcy proceedings would also temporarily delay numerous lawsuits against the company, giving its management some breathing room to get the company’s financial house in order. The retailer had been in the middle of a turnaround plan that included freshening up its product lineup, overhauling its supply chain and reining in American Apparel’s notoriously risqué advertising.

Paula Schneider, a longtime retail executive brought in last year to salvage American Apparel’s ailing operations, is expected to stay on as chief executive through the bankruptcy proceedings.

In an interview on Sunday, Ms. Schneider said that free of its crippling debt and interest payments, American Apparel could finally put that turnaround plan into action. The retailer was able to bring to the store only 15 to 20 percent of its planned lineup for the fall season, because it could not afford to do more, she said.