Statement By Dov Charney Regarding American Apparel Bankruptcy Ruling


LOS ANGELES, Jan. 25, 2016 /PRNewswire/ 

I am obviously disappointed by the judge’s decision to confirm the debtors’ reorganization plan and hand ownership of American Apparel to its bondholders.

This outcome is one that I have been working tirelessly for nearly two years to avoid in an effort to protect value for the company’s various stakeholders. Now all stockholders will have their shares and value extinguished.

Many of the company’s loyal vendors will recover only cents on the dollar of what the company owes them. And the company’s workers, faced with current management’s inability to generate profits, face a highly uncertain future.

It is without question that the debtors, Standard General and the bondholders carefully orchestrated a strategy to pass the Company over to the bondholders without exposing it to fair market test or bidding.

american apparel

This outcome was the only logical and unfortunate conclusion of many months of pre-bankruptcy preparation on the part of the bondholders and the company’s board.

Here the bondholders and current management effectively used Chapter 11 as a defensive measure to thwart my efforts.

This goal was pursued despite the many alternative pathways and opportunities to preserve value.

As evidence of the lengths the Board went to in facilitating its scheme they filed a “lock – up” agreement, prohibiting secured creditors and bondholders from considering alternative offers.

american apparel

Chief Judge Shannon was clearly concerned about the Company’s failure to undertake any marketing effort and on November 19 he ordered them to market the Company. Although the Debtors were uncooperative even after the Court’s order, through intensive efforts with our financial partners, we submitted-a bid that was demonstrably superior to the Debtors’ filed plan. Indeed, the Court said in its ruling that if American Apparel were for sale, the Court would not have hesitated to send the parties back to the auction table.

The Debtors then increased the economics to match the offer, but refused to engage in further negotiations. They then embarked on a scorched earth campaign to block further bids, subjecting myself and my financial partners to days of depositions during the waning days of the already truncated marketing process. In short, they did everything possible to curtail all efforts to bring fair, reasonable value to creditors.

american apparel

Since relocating American Apparel to Los Angeles in the late 1990’s from South Carolina I was bucking conventional wisdom by trying to preserve American manufacturing jobs and keep apparel manufacturing in the United States. Even though everyone else was moving jobs offshore, I was able to build and grow a profitable apparel business by manufacturing domestically. At every step along the way people challenged me and said I was crazy for trying. American Apparel was one of the only companies that shattered the sweatshop paradigm by paying fair wages, and did so at scale. By the time American Apparel went public in 2007, it was running the largest operating apparel manufacturing plant in the United States.

For these endeavors I remain justifiably proud.

There was logic to the company’s unconventional business strategy as evidenced by the company’s historic earnings.

sass american apparel

Until I was removed as CEO, the company had posted positive EBITDA (earnings before interest, taxes, depreciation and amortization) in nine of the last ten years.

There were many other things that we did differently at American Apparel, besides manufacturing domestically, in which we were ahead of the times.

Whether it was deploying RFID technology in our retail stores, fulfilling e-commerce orders direct from retail stores, or opening stores in emerging neighborhoods before they were recognized as attractive retail markets (just a few examples among many), we were often ahead of the curve.

It was because our organization respected and celebrated creativity and unorthodox thinking that we were so successful, and I was committed to protecting this spirit of contrarian thinking.

american apparel

When the Company’s board removed me as CEO in June 2014, I was midway through what was shaping up to be a successful recalibration of American Apparel’s business. The process of my disenfranchisement ultimately resulted in a wealth transfer from the Company’s shareholders, vendors, and employees to hedge funds, lawyers, and bankers.

The company was rebounding from a catastrophic distribution center shift implemented by the former CFO and was on track to post a positive operating profit in the second quarter of 2014, and on track to hit its earnings guidance for the year of $40 million EBITDA.

With the company’s bonds trading down because of the uncertainty around the success of the turnaround, I believe I was pushed out as CEO because of pressure that the bondholders exerted on the company’s then CFO and board of directors (As I have alleged in my litigation, I maintain the view that the then CFO, John Luttrell, conspired to sell the company behind my back and to that end disenfranchised me as a shareholder during the June 2014 annual meeting by way of a misleading and fraudulent proxy).

american apparel

The resolute goal of the bondholders was to sell the company so they could profit, but I had to be pushed out of the way since I was the company’s largest shareholder.

I was not willing to give up, and I attempted to regain control of the company because of my concerns that the company was still in a very vulnerable position with its turnaround not yet complete.

I feared, with good reason, that the new management, not understanding what made American Apparel successful in the first place, would try to run the company in a more “conventional” manner.

Because the board and new management did not appreciate that a vertically integrated domestic manufacturer had to approach business in a fundamentally different fashion, I felt that the company’s future was in serious jeopardy if they ran it like a traditional retailer. For this reason, I entered into a partnership with the hedge fund, Standard General, to regain control of the company. I could have assembled a coalition of shareholders to force a change at the board level, but given the urgency of the situation, I decided to surrender part of my economic interest in the company to regain control quickly.

american apparel

When Standard General did not deliver on their promises to reinstall me as CEO by late summer 2014, even though they had appointed new directors constituting a majority of the board, Standard General said I could buy them out of their investment. When I showed up with investors to do precisely this, they said that they could only support a go-private transaction for the entire company.

In December 2014, a private equity firm offered $1.30-$1.40 per share to take the company private. The board rebuffed this offer as well, as offering inadequate value to shareholders for a company they said was worth much more. Instead, the board pursued a path where only a year later the shareholders are receiving zero. The offer that I made in conjunction with Hagan Capital to purchase the company was just one in a long list of offers, and there was no reason to believe that this one would end any differently, given the powerful forces steering the company towards a reorganization where the bondholders end up owning the company. While many parties close to me feared that this would be the outcome of my partnership with Standard General, even they could not fathom such a reversal.

american apparel

While outside observers might not yet appreciate it, I believe the path being followed by the company’s management is a road to ruin. The financial results of plummeting sales and EBITDA thus far support this. Management attempts to explain away their abysmal financial performance, as the result of inadequate liquidity, but the truth is that they misunderstand the unique business model that American Apparel must pursue as a vertically integrated domestic manufacturer.

Their losses are self-inflicted, the result of poor decisions, made by executives who are learning as they go. Part of me can scarcely believe that a court could confirm their plan as feasible given the operating performance of the business under their management and 18 months into their turnaround plan.

But while the bondholders are likely to be put in a position to throw good money after bad for consciously pursuing this path, I worry for the manufacturing workers and the business community who are the collateral damage to this corporate drama.

american apparel

I’m proud of the creativity and innovation that American Apparel fostered over the years. We made important strides in the areas of ethical manufacturing and art as they intersect with commerce.

The sad reality is that American Apparel, the largest garment manufacturer in the United States, will not survive at this pace and I don’t believe the current management has the talent to bring it back to health.

At the end of this saga, I, like the many former stockholders, will most likely be left with nothing. Despite that, what gives me great optimism are the things I possess that can’t be stolen by a predatory hedge fund – my ideas, values, drive, authenticity, integrity and my passion. To that end I ask that my supporters stay tuned.

Dov Charney
(213) 923-7943


dear tony, could you date rihanna?

rihannait would be tough to date rihanna, not because i’m pretty bad at handling high maintenance ppl,

but because my mom doesnt like her.

which is sad because there arent all that many black super dooper pop super stars in the world

and youd think shed be rooting for her

but the day my little niece around the monopoly table started singing

bitch better have my money

was pretty much the last straw.

riri’s travel wouldnt bother me, i’m self sufficient and sometimes the xbi… well lets just say sometimes the busblog is written by committee.

deep down we understand why rihanna is the way she is. if i was one of the prettiest women in the world and every year or so my records just blew up, and every tom dick and harry was trying to get their dick in me, and i was rocking the courtside seats and just getting prettier and prettier magically and kanye and paul mccartney and lord knows who else wanted to perform with me, and i was getting grammys and co-starring in Battleship

it would either turn me very humble, or the opposite of that.

especially if i looked smoking hot in a rain coat.

could i date her? yes. should she date a blogger? no. would we be a match made in heaven? probs. would i take her to isla vista? no. thats my little special place. would i let rihanna help me build a Motel California on del playa?