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.