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NEW YORK, United States — American Apparel Inc. bondholders hired Houlihan Lokey and Milbank, Tweed, Hadley & McCloy LLP as advisers in preparation for restructuring negotiations with the troubled retailer, two people familiar with the situation said.
Creditors who are owed about $206 million retained the bankers and lawyers, said the people, who asked not to be identified because the matter isn’t public. American Apparel has been working with investment bank Brean Capital LLC amid mounting losses and slowing sales, the people said.
American Apparel, which started trading publicly in 2007, has confronted occasional cash shortfalls since 2009. The chain of about 250 stores survived by privately selling shares to Chief Executive Officer Dov Charney and other investors, persuading lenders to amend credit agreements to avoid breaching covenants, and -- more recently -- by ramping up borrowing.
Charney declined to comment on whether the company’s bondholders have hired advisers or its role with Brean Capital. Representatives of Milbank and Houlihan declined to comment, and a phone message left for Brean wasn’t immediately returned.
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The shares fell 32 percent to 66 cents at today’s close after the Wall Street Journal reported that the retailer had enlisted lawyers at Skadden, Arps, Slate, Meagher & Flom LLP to work on restructuring options. Charney denied that report, saying in an interview that Skadden has been the company’s outside counsel for years and it’s a “mischaracterization that they have been engaged as a restructuring firm.”
Debt Refinancing
The Los Angeles-based chain appeared to be on the mend early last year after sales rebounded and it refinanced its debt. In April, American Apparel issued $206 million of bonds carrying a 13 percent rate and entered a new $35 million asset- backed credit revolver to pay off higher-interest debt. It increased that credit line to $50 million three months later.
The turnaround faltered in the second half of last year, when a malfunctioning distribution center required costly repairs and slowed sales. The chain also amended debt terms, paying interest penalties and borrowed money at 18 percent interest while laying the groundwork for selling stock.
Charney – who also is the chain’s chairman and largest shareholder, with 43 percent of the stock – is no stranger to turmoil. His company has attracted controversy for everything from using nudity in its advertising to a legal battle with director Woody Allen over the use of his image on billboards. American Apparel paid $5 million to settle that suit. Most recently, one of the company’s New York stores gained attention by featuring mannequins with pubic hair.
By Beth Jinks, Matt Townsend; Editors: Nick Turner, James Callan.
