Wall Street Journal
By Mike Spector and Elizabeth Holmes
American Apparel Inc., the clothing manufacturer known for risqué advertising, is racing to seal a deal for up to $10 million in rescue financing to avoid a bankruptcy filing, said a person familiar with the matter.
The Los Angeles-based company has held talks with an individual investor in recent days who has expressed interest in providing money for the retailer, run by controversial Chief Executive Dov Charney. The money would come in the form of equity, this person said. The potential investor, whose identity couldn't be determined, isn't a well-known name, this person said. The company hopes to secure a deal as soon as this week.
Talks with the investor faced some wrangling in recent days, the person said, and optimism about clinching a deal has faded. If the talks fall apart, American Apparel could be forced to file for Chapter 11 bankruptcy protection as it runs low on cash, the person said. Some close to the company said it can still avoid bankruptcy even if the talks fall apart.
The rescue financing would give American Apparel some breathing room, but the retailer would still need to raise another $10-15 million afterward to survive, the person said. The company hopes that an improving economy may limit any need for additional funds.
An American Apparel spokesman declined to comment.
At the end of February, American Apparel had $5.3 million in cash, down from $7.7 million at the end of December, according to regulatory filings. The company recently warned it "may not have sufficient liquidity to sustain operations and to continue as a going concern."
Meantime, sales are slumping amid the company's cash strain and debt woes. Sales fell nearly 5% last year to $533 million. American Apparel lost more than $86 million last year after earning $1.1 million in 2009.
American Apparel's stock has been trading around $1 amid a series of close calls in which the retailer tapped new money to avoid seeking bankruptcy protection. Late last month, Mr. Charney raised his stake in the company to 54%, purchasing 1.8 million shares for about $2 million.
American Apparel has leaned heavily on Lion Capital, the UK private equity firm that extended the company a lifeline in March 2009. American Apparel has since amended debt terms with Lion Capital at least five times amid its financial difficulties. Two directors from Lion Capital left the board, the company said earlier this month.
American Apparel currently owes about $81 million to Lion Capital and an additional $58 million on a credit line with Bank of America Corp.
In the midst of the turmoil, American Apparel has been beefing up its management team. The company installed former Blockbuster Inc. chief financial officer Tom Casey as acting president in October. Earlier this year, the company named John Luttrell, former chief financial officer at Old Navy, a division of Gap Inc., as its chief financial officer.
Law firm Skadden, Arps, Slate, Meagher & Flom has been advising the company on its recent restructuring efforts alongside investment bank Rothschild Inc.
