American Apparel Said to Look to Raise Cash to Stave Off Liquidity Crunch

American Apparel Inc. (APP), the Los Angeles clothing maker striving to avert a cash shortage, may look to raise as much as $8 million, said a person familiar with the financing.

The company hired Rothschild to pursue investments from current investors and outsiders, said the person, who asked not to be identified because the terms aren’t public. They would be similar to the private placement the retailer did with founder Dov Charney last month, according to the person.

The investments aren’t definite, as some executives expect cash flow to improve as sales climb with the onset of warmer weather, the person said. A cash infusion may ease some investors’ concerns about American Apparel, which said last week that it’s at risk of filing for bankruptcy protection without improved liquidity or an operational turnaround.

American Apparel has amended loan agreements with Lion Capital LLP at least five times to avoid breaching debt covenants. Charney, also the chairman, chief executive officer and the majority shareholder, paid about $2 million for 1.8 million shares in a private placement, according to regulatory filings dated March 24.

American Apparel declined 2 cents to 80 cents at 4:01 p.m. in NYSE Amex trading. The shares have dropped 53 percent this year. The stock traded at an all-time high of $15.80 in December 2007.

The company isn’t pursuing a sale, according to the person. Peter Schey, a spokesman for American Apparel, declined to comment. Representatives at Rothschild didn’t immediately return a call.

The retailer, known for its colorful t-shirts and provocative ads, has lost money for four straight quarters and forecast an operating loss for the year. Total sales fell to $533 million last year as productivity slumped following the firing of about 1,500 workers. That, coupled with increasing costs for yarn and fabric, ate into profitability, American Apparel said April 1.

To contact the reporter on this story: Matthew Townsend in New York at mtownsend9@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net

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