American Apparel Inc.’s shares fell 32 percent Thursday after reports said it has hired Skadden, Arps, Slate, Meagher & Flom to advise it on restructuring options.
Credit professionals are saying that the controversial specialty chain has been having a hard time complying with financial covenants in its loan agreements. Meanwhile, those who trade debt have begun speculating whether a restructuring of the chain’s financial structure could include a bankruptcy filing down the road.
Since the end of January, shares of American Apparel have been struggling to stay above the $1 per share range. On Thursday shares closed at 66 cents.
The Wall Street Journal reported Thursday that the chain hired lawyers from Skadden, Arps regarding restructuring options.
John J. Luttrell, the retailer’s chief financial officer, could not be reached for comment by press time.
In November, ratings agency Moody’s Investors Service lowered American Apparel’s credit rating a single notch to “Caa2” from “Caa1,” after the Los Angeles-based firm fell out of compliance with covenants of its credit facility with Capital One. Moody’s has the rating outlook at negative.
American Apparel has said its issues stem from difficulties making the transition to a new distribution center. And the retailer has also said it didn’t expect to be in compliance with its Capital One facility until the third quarter of 2014.
The firm’s net loss in the third quarter was narrowed to $1.5 million from $19 million, while sales inched up 1.5 percent to $164.5 million.
The weakness at the vertical chain doesn’t seem to be abating. Its January comparable-store sales declined 5 percent, a sequential decrease from December’s comp drop of 6 percent.
American Apparel is scheduled to report fourth-quarter results in mid-March.
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