The Industry Agrees: How Long Can American Apparel Stay Afloat?

March 16, 2012 • Fashion Blog

Inside American Apparel

After reporting earlier this week that American Apparel had been bailed out of bankruptcy by an $80 million credit line from Crystal Financial, a firm backed by billionaire George Soros, WWD came right on and said what everyone was thinking: how long can this really last?

“Dov keeps pulling another rabbit out of his hat, which I would say is pretty impressive for a small company,” retail consultant Antony Karabus said. “Many others would not have been able to continue to fight another day.” In addition to securing the substantial credit line, the retailer also managed to push back the maturity date on a $90 million second-lien term loan from Lion Capital by two years to Dec. 31, 2015. The deal extends the life of about $50 million in debt with Bank of America that was set to come due in July. However, the new financing almost doubles the interest rate American Apparel will pay, from about 5 percent previously to about 9.5 percent under the Crystal Financial terms.

“The goal posts keep moving,” an industry exec who is familiar with the American Apparel plight, told WWD. “Dov doesn’t care about debt. He just wants to buy more time to keep the company afloat.” Dov hasn’t cared a lot about it the past, including the public image of his company went he seemed to go almost out of his way to smear the brand’s reputation with everything from trademark infringement to sexual harassment allegations to publishing overt prejudices in his hiring practice. All that left many with a sour taste in their mouth for a company that already charges 30 bucks for a crewneck cotton t-shirt. So  is this temporary solution only prolonging the inevitable?

“Charney is digging himself into a hole he won’t be able to get out of. Given the history of the company, it’s apparent there are fewer and fewer people who want to lend to these guys.”, said a  specialty retail analyst on Wall Street. “People have been willing to give them a pass in the past, but at some point, nobody is going to want to play with these guys.” We’ve said it before and we’ll say it again: we don’t mind if that point comes sooner rather than later. Karma stinks, Dov.


-Alia Rajput

Article Source: WWD

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