Is American Apparel close to the Bankruptcy?

The NY Post reports that bankruptcy is looming for American Apparel, in part due to a $15.4 million bond payment due in October. A source tells the Post that the company likely only has $10 million in cash on hand. This spring, American Apparel had to borrow from hedge fund Standard General in order to make the twice-yearly bond payment.

Meanwhile, legal bills for the brand’s fight with ousted founder Dov Charney are also piling up. Should American Apparel fall into bankruptcy, the Post claims that Charney is seeking investors to help him buy the company back.

Both American Apparel and Charney didn’t respond to a request for comment from the paper. The company will release its quarterly earnings in the next few weeks though, and shareholders don’t sound optimistic despite American Apparel’s turn-around plan from new CEO Paula Schneider. «My expectation is that the quarter will be horrible,» shareholder Michael Bigger told the Post.

The American Apparel factory is the largest sewing facility in North America. We believe that integrating our manufacturing, distribution and creative processes keeps our company more efficient than those who rely on offshore or onshore sub-contracting. By leveraging art, design, and technology at our Downtown LA campus, we are able to pay garment workers fairly AND sell garments profitably so we can sustain our business and grow. Everyone benefits – customers, workers, and shareholders alike.

The latest news underlines what a slog it faces. In a press release filed on July 6 with the SEC, the company provided details of an aggressive cost cutting plan that will require closing stores and furthercutting its workforce. (It already laid off 135 workers in September). Its goal is to reduce expenses by about $30 million over the next 18 months. The plan also involves attempting to grow revenue. For what it says is the first time ever, it’s launching a new fall line of clothing.

Those measures, however, may not be enough, and American Apparel knows it. At the end of March, the company had $21 million cash on hand. Looking out 12 months, though, it warned it may need to raise more money. “There can be no guarantee that the Company will have sufficient financing commitments to meet funding requirements for the next twelve months without raising additional capital,” the statement said, adding, “and there can be no guarantee that it will be able to raise such additional capital.”