Is This The Beginning Of The End For American Apparel?

by Justin Fenner | 11:04 am, April 4th, 2011

American Apparel‘s financial situation might be worse than we thought it was last week, when the brand wrote in its first quarter report that it lost $86.3 million dollars in 2010. Today, the picture has become a little clearer, with WWD reporting that unless a fiduciary miracle happens before April 30 (like someone buying a controlling stake in the brand), CEO Dov Charney and company might have to file for bankruptcy protection.

That’s because in addition to declining sales and stock prices, the company is also in serious debt, owing several millions of dollars to banks in the United States, Canada and England. Per WWD:

As of Feb. 28, it had just $5.3 million in cash and $1.9 million of availability for additional borrowings on a Bank of America credit agreement and $1.2 million on a Bank of Montreal credit agreement. The company owed $58.2 million on the Bank of America facility and $4 million on the Bank of Montreal facility. Additionally, as of Dec. 31, American Apparel owed $81.2 million to Lion Capital, the London-based private equity firm that rescued the company from its last financial precipice, in 2009.

Still, even as it becomes clearer and clearer that the company is running out of options, Charney insists that bankruptcy is the last thing he’d consider. “We could do a private placement of stock,” he said. “Or we could use the resources we have. We do $10 million a week in sales.”

American Apparel has hired the Rothschild investment bank to look for potential investors, but so far no one has expressed an interest. The company has warned on a number of occasions that without some kind of infusion of cash, it might not be able to move forward as a going concern — meaning that within the next 12 months, it might be liquidated.

Bank of America and Bank of Montreal have asked the company “to furnish audited financial statements that do not contain a ‘going concern’ qualification by April 30.” If it doesn’t, its loans will go into default and it’ll have to pay off its debts immediately.

Of course, fixing his flailing business isn’t the only problem Charney has to deal with. Last month, a group of women came forward to allege that he sexually assaulted them. And with cards like that stacked against him, it’s looking like Charney is going to have a rough month.

American Apparel Faces Financial Precipice [WWD]

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