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Apr 1, 2011
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American Apparel says it may file for bankruptcy

By
Reuters
Published
Apr 1, 2011

American Apparel may file for bankruptcy protection if it does not get enough funds to keep running, the clothing company and chain said in a U.S. regulatory filing.

American Apparel
American Apparel

The company, which also reported an $86.3 million loss for 2010, compared with a profit of $1.1 million in 2009, is exploring alternate sources for cash and has hired a financial adviser.

"We are currently experiencing significant liquidity constraints," American Apparel said in its annual report, which it filed with the U.S. Securities and Exchange Commission on Thursday.

American Apparel said it may determine that it is in the company's best interests to file for a pre-packaged, pre-arranged or other type of Chapter 11 bankruptcy.

"Further, if we were unable to implement a plan of reorganization or if sufficient debtor-in-possession financing were not available, we could be forced to liquidate under Chapter 7 of the U.S. Bankruptcy Code," it said.

The company made the bankruptcy comments in the "risk factors" section of its filing.
Charney put the odds of filing for bankruptcy at "not even a 1-in-1,000 chance," in an interview in Friday's edition of the Los Angeles Times.

"While it's a remote possibility, we think we're going to have a decent year," Charney told the newspaper. "We're in here fighting hard.... We're seeing recovery in worker efficiency and we're seeing a recovery in sales momentum."

In the same interview, he said he expects the company to report a pre-tax loss in 2011.

Representatives of one of the company's largest lenders also quit the board.
Lion Capital's directors Lyndon Lea and Neil Richardson resigned on March 30 "to allow Lion flexibility in evaluating its options to optimize its investment in American Apparel," American Apparel said in the filing.

Lea and Richardson left two days after CEO Charney bought 1.8 million shares in the struggling clothing chain, raising his stake in the company to about 54 percent.

American Apparel had $57.2 million in borrowings under its revolving credit facilities as of December 31, 2010, and $81.2 million of borrowings under its facility with Lion.

As of Feb. 28, 2011, the company had about $5.3 million in cash, the filing said.

American Apparel, known for its "Made-in-USA" clothes, has been taking heat for other issues, including a long-running sales slump and immigration probes of its workers and sexual harassment cases against its chief executive.

American Apparel's shares closed at $0.96 on Thursday on the American Stock Exchange.

(Reporting by Nivedita Bhattacharjee in Bangalore; Editing by Saumyadeb Chakrabarty and Robert MacMillan)

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