American Apparel Inc. (APP) is close to refinancing a $75 million loan that may allow the chain to remove language from its public filings that it’s at risk of ceasing operations, said two people familiar with the situation.
The retailer may sign an agreement with Boston-based Crystal Financial LLC in the next two days to refinance the credit revolver held by Bank of America Corp., said the people, who declined to be identified because the negotiations are private. The facility was due to mature on July 2. Crystal was founded in 2010 and its lead investor is a fund backed by George Soros, according to its website.
American Apparel, based in Los Angeles, has said in quarterly and annual filings since 2010 that it may not have enough cash to sustain operations for the next 12 months, raising “substantial doubt that the company will be able to continue as a going concern.”
Chief Executive Officer Dov Charney is trying to keep the retailer afloat during a string of seven straight quarterly losses that has forced it to raise cash from investors. American Apparel’s revenue has gained in the past two quarters, and the chain’s same-store sales rose 11 percent in January and February.
American Apparel, which has about 250 stores in 20 countries, rose 12 percent to $1.02 at the close in New York. The shares gained 21 percent yesterday after the New York Post reported on the potential deal.
Peter Schey, a spokesman for American Apparel, and Pam Flores, a spokeswoman for Crystal Capital, declined to comment.
American Apparel in April sold $14.9 million in shares to a group of investors from Canada to bolster its finances after losing $86.3 million in 2010. The company also had to amend loan agreements to avoid breaching debt covenants, including getting waivers allowing it to file financial statements with the “going concern” language.
Charney has said the losses were due to costs and productivity declines related to replacing 2,500 workers after immigration violations in 2009.
To contact the reporters on this story: Matt Townsend in New York at email@example.com; Hitha Prabhakar in New York at firstname.lastname@example.org
To contact the editor responsible for this story: Robin Ajello at email@example.com