American Apparel to Sell Stock to Head Off Cash Crunch

American Apparel Inc. (APP), facing another cash crunch, plans to sell $30.5 million of stock to pour more money into its attempted turnaround and meet looming debt payments.

The funds will cover interest due next month on its senior secured notes, the Los Angeles-based retailer said today in a statement. The underwriters also have a 30-day option to buy as much as $4.58 million in additional shares. The company’s market value was $83.4 million at yesterday’s close.

American Apparel, which started trading publicly in 2007, has been confronting intermittent cash shortfalls since 2009. In the past, it sold shares to founder and Chief Executive Officer Dov Charney and other investors, convinced lenders to amend credit agreements and ramped up borrowing.

Charney declined to comment beyond the statement today.

The shares sank 22 percent to about 59 cents at the close in New York, reflecting the dilution of current investors’ holdings that the stock sale will cause. American Apparel has declined 52 percent this year, reaching its lowest closing price since Dec. 14, 2011.

The retailer’s current crunch comes after it took on more debt last year as its sales improved. After it increased borrowing, the company had difficulties transitioning to a new distribution center, which cost more money than expected and hurt sales because deliveries were disrupted.

Seeking Cash

The situation left American Apparel seeking cash late last year. The company borrowed $5 million under a previous loan agreement at 18 percent interest. It also didn’t meet required debt ratios on bonds, paid $2 million in extra interest expenses in the third quarter and said it wouldn’t meet those conditions in the fourth quarter.

The retailer said today that it entered into an amendment with the lender on its revolving credit line that waives leverage-ratio requirements for previous quarters. The agreement with Capital One Financial Corp. is dependent on American Apparel receiving at least $25 million from the stock offering by April 15.

Sales haven’t rebounded this year, and with an interest payment of about $13.5 million due in April, American Apparel is seeking to raise money. As of Feb. 28, the company had $4.9 million in cash and about $3.28 million it can borrow from credit lines.

The retailer also said today that its net loss widened to $107 million, or 97 cents a share, in 2013, from a loss of $37 million, or 35 cents, the previous year. That pushes total losses since the beginning of 2010 to about $270 million.

Delisting Danger

American Apparel also is in danger of being delisted by NYSE Amex, which said in February that it was questionable whether the chain could continue operations and meet its obligations with its impaired financial position. The exchange requested a turnaround plan, and the retailer submitted one on March 21.

If the exchange doesn’t accept the plan or if American Apparel doesn’t make progress consistent with the plan by April 15, the exchange will start delisting proceedings, the company said today in the prospectus for the share offering.

American Apparel faced a possible delisting in 2010 for failing to file financial reports on time due to a change in accounting firms.

Last month, the retailer’s bondholders hired advisers as they braced for a restructuring, people familiar with the situation said at the time. Creditors who are owed about $206 million retained the firms Houlihan Lokey and Milbank, Tweed, Hadley & McCloy LLP, the people said.

The stock offering announced today is being managed by Roth Capital Partners, with assistance from Brean Capital.

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

To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net John Lear

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