American Apparel has filed for bankruptcy protection. The overpriced and “trendy” clothing retailer's board approved the petition for Chapter 11 bankruptcy, which was filed in federal bankruptcy court in Delaware.

Per the New York Times, American Apparel's business has been crippled by larges debts, a swift drop in sales, employee tensions over unionization, and drawn out legal troubles with the retailer's disgraced founder, Dov Charney.

Charney's stake in the company, which he founded in 1989, was worth roughly $8.2 million as of Friday. His and all other shareholders stake has been wiped out due to the bankruptcy. American Apparel is now controlled by its creditors, which include Goldman Sachs (GS) and Standard General – Standard General being the hedge fund that is currently leading the RadioShack turnaround.

Here are some of the figures reported in the New York Times article:

“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.”

Since American Apparel is in a state of instability, let's examine 3 other retail stocks that may be a worthy addition to your portfolio.

1.     Citi Trends Inc. (CTRN – Analyst Report)