American Apparel is known as a hit among hipsters and those seeking a clean, modern look. But the American-made retailer may soon have to shut its doors. The retailer is facing bankruptcy with a large bond payment due soon, lurking legal bills from removing past CEO Dov Charney and a low access to cash. Charney was let go over sexual harassment allegations.
In order to make their twice yearly bond payment in April, the Los Angeles-based retailer borrowed money from hedge fund backer Standard General and must come up with another $14.5 million by October 15 for debt payments.
The company’s quarterly earnings report will be released in the next few weeks and investors are preparing for the worst.
“My expectation is that the quarter will be horrible,” Michael Bigger told the New York Post. Bigger owns about 100 shares in the company.
A source close to the brand said that the company is spending cash at a fast pace and may only have $10 million in its reach. However, the retailer reported having $21 million at April’s end, $15 million being a loan from Standard General.
In its annual meeting the company proposed issuing more shares, but the idea did not go over well with shareholders and was dismissed.
“There can be no guarantee that the company will have sufficient financing commitments to meet funding requirements for the next 12 months without raising additional capital, and there can be no guarantee that it will be able to raise such additional capital,” said shareholders this month.
Charney, who is also the founder of the company, holds the most shares. Yet Standard General controls his voting rights. Charney has sued American Apparel and Standard General since his firing.
It is also rumored that Charney is rounding up investors to buy the company if it does indeed go bankrupt.
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