NEW YORK, United States — Sex, money, betrayal: the bizarre brawl between American Apparel Inc. and its founder, Dov Charney, has all that and more.

But now this tabloid tale is coming down to a seemingly staid bit of finance: the bonds.

For all the back-and-forth over American Apparel — over Charney’s alleged sexual antics, management’s wrath and the duelling lawsuits that have followed — neither side is in control.

Instead, the bondholders are.

That became apparent on Monday, when the company announced a prearranged bankruptcy filing. If approved in court, creditors led by Monarch Alternative Capital, Coliseum Capital and Goldman Sachs Asset Management will exchange their bonds for equity and seize ownership of the reorganised company.

The news comes less than two months after the distressed-debt specialists cemented their grip over the retailer by taking a majority stake in its credit line — the cash-strapped company’s only source of funding, according to people familiar with the situation.

“This is a debt-holder owned company now,” said Charles O’Shea an analyst who covers American Apparel at Moody’s Investors Service.

Representatives for Standard General, American Apparel, Monarch and Goldman all declined to comment. Coliseum didn’t respond to a request for comment.

Monarch Stake

Monarch, which manages about $5 billion, is by far the largest bondholder and will have co-founder Andrew Herenstein oversee its investment in American Apparel, said the people, who asked not to be identified because the matter is private. Monarch was also a bondholder in snack-maker Hostess Brands, which ultimately filed for bankruptcy in 2012 and then was liquidated.

It’s a remarkable turn of events for Charney, as well as hedge-fund manager Standard General, which seemed to ride to his rescue earlier this year. With a few shrewd moves, Standard General extracted substantial shareholder voting power from Charney after giving him a loan and used that leverage and some rescue financing to revamp the board in its favor before they fell out.

Only now, both have been outflanked by bondholders.

With a $13.9 million bond payment coming due on Oct. 15, and few visible signs of improvement as it kept burning through its remaining cash, the bondholders decided to push the company into a restructuring.

No Guarantee

The strategy isn’t without considerable risks. Bondholders may recoup far less in a bankruptcy than the current market value of the debt, which last traded at about 75 cents cents on the dollar, Hebert said.

There’s also no guarantee the business will become sustainable, but cutting its debt obligations will give it a “fighting chance now” to survive, O’Shea said. American Apparel’s losses have only accelerated since the board suspended Charney in June 2014 and fired him in December for alleged misconduct. Even as announcing a turnaround plan, which included revamping management, toning down its erotic marketing and closing stores, sales fell 14 percent in the first half of the year.

The proposed bankruptcy aims to reduce debt while keeping the company operating with financing provided by lenders, the company said in a statement on Monday. The reorganisation may take six months.

RadioShack Gambit

Standard General was a little-known player until last year, when it made a splash at American Apparel and RadioShack Corp. — another ailing chain. With both companies, it hoped to cash in on the bet that turnarounds were possible.

Neither have gone according to Standard General’s plan.

RadioShack filed for bankruptcy protection in February and faced liquidation until Standard General parlayed its role as the largest investor and a crucial lender into acquiring 1,700 of its 4,000 stores. That’s improved the prospects for that investment.

At American Apparel, bondholders have much more sway. Even before they took over the credit line, their bonds were likely to be the first piece of debt that wouldn’t be repaid in full in a default, or if the retailer is liquidated or sold in bankruptcy. That position now gives them the most influence in the bankruptcy proceeding because they have the most at stake. With RadioShack, Standard General led a group of lenders that had the power.

Standard General’s investment in American Apparel has never amounted to more than a small fraction of its $1.3 billion portfolio, but the bankruptcy is yet another blow.

“I wouldn’t say they’ve failed, but it’s not like they are rounding the bases with a grand slam yet either,” said Noel Hebert, a senior U.S. credit analyst at Bloomberg Intelligence.

By Matt Townsend and Jodi Xu Klein; editors: Nick Turner and Michael Tsang.