American Apparel is scrambling to find new financing as it faces a severe cash crunch and a looming April 30 deadline that could cut off its ability to borrow from banks and cover daily operating costs, which could potentially trigger a Chapter 11 bankruptcy filing.
The company has tapped the Rothschild investment bank to shake the money tree for potential investors, but so far there have been no takers, according to company insiders.
“Without an additional injection of cash, the company is done. Somebody has to write a check,” said Howard Davidowitz, chairman of New York-based Davidowitz & Associates, a retail consulting and investing banking firm. “There is no way the company can continue in its present state.”
Dov Charney, chairman and chief executive officer of American Apparel, insisted the company will not file for bankruptcy. “In my opinion, there’s no chance of that. That’s not an option we are going to explore,” he told WWD. “We have a variety of options. We could do a private placement of stock. Or we could use the resources we have. We do $10 million a week in sales.”
However, the company’s financial picture is bleak. Last week, it reported a net loss for 2010 of $86.3 million and an EBITDA loss of $7.4 million. 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.
The company has repeatedly warned in its filings with the Securities and Exchange Commission that it may not be able to continue as a “going concern,” due to its financial circumstances. Charney has spun those warnings as boilerplate language meant to protect investors—but they have also triggered a serious potential covenant breach with lenders.
Both Bank of America and Bank of Montreal require the company to furnish audited financial statements that do not contain a “going concern” qualification by April 30. Unless American Apparel can win waivers for this covenant, its loans will go into default, preventing the company from making any additional borrowings, and the entire debts become immediately due.
In addition, defaulting on the Bank of America credit agreement would trigger a default on the Lion Capital loan.
“It’s a pretty meaningful date,” said Lyndon Lea, a founding partner at Lion Capital, of the potential April 30 covenant breach.
Lea and Neil Richardson, also of Lion Capital, both resigned from the American Apparel board last week, which some observers saw as an indicator that the investment firm is losing faith in Charney. However, Lea countered the move was taken to prevent a conflict of interest for the equity firm.
“As board members, we were responsible for a lot of different interests in terms of shareholders and creditors and stakeholders. Now that we have been talking about raising new forms of liquidity, and we’d have to have a clear point of view on whose interest we were looking out for, that made it more difficult. Something that was good for American Apparel might be bad for Lion Capital,” explained Lea.
Asked why the two joined the board in the first place, Lea responded: “That’s a damn good question. But hindsight is 20/20. We didn’t think there would be these liquidity issues when we first made the investment and the company was doing $80 million in EBITDA.”
Lion Capital may provide additional financing to American Apparel itself, with Lea saying he was “favorably inclined” to doing so but that no final decisions had been made. Lion Capital is exploring various loan and investment options, he added, noting that an additional cash infusion into American Apparel was probably necessary “within weeks.”
Asked his views on a possible American Apparel bankruptcy filing, Lea said he wasn’t concerned for Lion Capital’s funds. “If they do file, I feel okay. I believe the brand has a lot of value, and it’s more than what they owe me,” he noted.
Davidowitz pointed out that any new investors could wrest majority ownership of American Apparel from Charney, who currently holds 62.7 percent of the shares in the company, not inclusive of warrants held by Lion Capital, convertible to 16.8 million shares. “I don’t see how there is any way for him to retain a majority stake in the company. Any major equity investor will want a controlling stake,” said Davidowitz.
As one of the most recognizable models in the world, Christy Turlington Burns has an insider’s view of the fashion industry and the allegations of sexual harassment swirling around it. “I can say that harassment and mistreatment have always been widely known and tolerated in the industry. The industry is surrounded by predators who thrive on the constant rejection and loneliness so many of us have experiences at some point in our careers,” Turlington told WWD, along with her suggestions for how the modeling world should protect younger women and men. Read more on WWD.com. Link in bio. (📷: Tony Palmieri) #wwdnews
@asics America has tapped a new brand ambassador: famed DJ/record producer @steveaoki. This initiative is intended to set the tone for the new brand identity and philosophy and will include partnerships with influencers and in-store and off-line activations that will continue into next year. This is Asics’ most significant marketing effort in two decades, and is expected to attract younger consumers to the brand. #wwdfashion
24-year-old Jean Prounis is redefining the rules of jewelry. Formerly a studio assistant to Jemima Kirke and a design apprentice at Ghuran, she focuses on handcrafted subtleties and ancient goldsmithing techniques. “There was a really sterile feel in the environment and I wanted to have jewelry with character that shapes how you wear it everyday,” Prounis said. Each piece is hand made in New York, either by Prounis or three other jewelers in the district. #wwdfashion
“These collections continue to build on that vision, empowering differently abled adults to express themselves through fashion,” said @tommyhilfiger of his line of adaptive apparel, which launches today. The line consists of 37 men’s and 34 women’s styles based upon the pieces from the spring Tommy Hilfiger sportswear collection. #wwdnews
“Stranger Things” is getting a new cast member for season 2. Meet @sadiesink_, the 15-year-old who will be joining the Netflix series for its new season. You may recognize her from “The Glass Castle” with Brie Larson and Woody Harrelson, but the Texas native’s next role goes in an entirely different direction. She describes her character, Max, as “a rough and tumble skater girl [who] becomes friends with the boys at school.” The second season debuts on October 27. (📷: @jgreenery) #wwdeye
Amid the Harvey Weinstein controversy, there’s another sector that’s being put under the spotlight for sexual abuse: the modeling industry. While rumors about abuse and sexual harassment of female and male models — and the photographers, agents and others who perpetrated it — have circulated within the fashion world for years, model @cameronrussell started posting stories from models on Instagram last week about abusive situations they’ve encountered — from sexual harassment and molestation to attempted rape. Over 75 have weighed in so far. Read more on WWD.com. Link in bio. #wwdnews
To celebrate its 16th anniversary, @dylanscandybar tapped designers and celebrities to create mosaics out of candy. The mosaics will be auctioned off to support the philanthropic cause of each participant’s choice. Pictured here is the mural created by @aliceandolivia's Stacey Bendet. For a first look at some of the other artwork being unveiled tonight, go to WWD.com. #wwdeye
The annual Veuve Clicquot Polo Classic in Pacific Palisades this weekend drew Kate Hudson, Tracee Ellis Ross, Laura Dern and more. See pictures of the star-studded event on WWD.com. (📷: @chelsealaurenla) #wwdeye
In his new book “Hollywood Royale,” Andy Warhol’s Protégé Matthew Rolston celebrates the Eighties revival of Hollywood glamour. Featuring more than 100 portraits taken by Rolston from 1977 to 1993, the book contains photos of icons like Michael Jackson, Cyndi Lauper, and @drewbarrymore, pictured here in 1991. “Hollywood Royale,” out today, will be accompanied by an exhibition opening at Los Angeles’ Fahey/Klein Gallery on March 1. #wwdeye