American Apparel may have just gotten another credit lifeline, but that doesn’t neccesarily mean the brand’s been saved.
Earlier this week, American Apparel got an $80 million lifeline from George Soros-backed Crystal Financial LLC and and Salus Capital Partners LLC. The company has managed to consistently avoid bankruptcy with these sort of 11th hour cash injections and loans; and while they may be buying time, retail analysts say it’s not enough to save the company, which is still over $100 million in debt and has $185 million in excess inventories. According to WWD, their new deal comes with a high interest rate of 9.5%, so that debt’s not going to go away any time soon.
The trade asked several retail industry insiders to give their perspectives on Charney and co.’s current situation. Most of them aren’t very optimistic. One executive offered, “Dov doesn’t care about debt. He just wants to buy more time to keep the company afloat.” Another said, “I think at some point, this all comes to a breaking point. The company’s debt load is too high and the interest rates are too high to be manageable.” “Charney is digging himself into a hole he won’t be able to get out of,” said one retail analyst. “Given the history of the company, it’s apparent there are fewer and fewer people who want to lend to these guys. 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.”
Of course, Charney must be doing something right if people are still willing to loan him money. Some are impressed with Charney for being able to keep his company afloat this long: “Dov keeps pulling another rabbit out of his hat, which I would say is pretty impressive for a small company,” said retail consultant Antony Karabus. He adds that the company may be attractive to investors and creditors because of “a level of sexiness and excitement that [Charney] portrays” and that they are “probably buying a vision and a promise that things will get better.” The retail analyst said, “I’ve never seen a company get so many lifelines. Dov must be very charming.”
Could charm and sexiness be enough to save American Apparel? Even though the company reported an increase in sales and a decrease in losses ($39.3 million compared with $86.3 million), that debt’s not going anywhere.