American Apparel Future in Doubt

Firm raises "going concern" question, could trip financial covenant by Sept. 30.

American Apparel Inc. said weak trends in its business and pressure to meet obligation to lenders “raise substantial doubt that the company will be able to continue as a going concern.”

The firm, headed by chief executive officer Dov Charney, said that barring a concession from its second lien lender, it would likely not meet the requirements of its minimum consolidated EBITDA covenant by Sept. 30.

If American Apparel breaks the covenant, it could default on its revolving credit agreement and be blocked from borrowing under the facility. All of the firm’s debt under the revolving credit facility and its second lien agreement could be declared immediately due and payable.

The firm said second-quarter losses from operations would range from $5 million to $7 million and described first-half losses as “substantial.”

“Based on this, and trends occurring in the company’s business after the second quarter and projected for the remainder of 2010, the company may not have sufficient liquidity necessary to sustain operations for the next twelve months,” American Apparel said.

For complete coverage, see Wednesday’s issue of WWD.