American Apparel on the Verge of Bankruptcy

by San Antonio Attorney

Popular for its cotton basics – such as the beloved Y-fronts – shares of the American Apparel reached $14 in 2008. The retail store was also named label of the year by Guardian in the same year. Shortly after, the founder of the company was a candidate for Time magazine’s 100 most influential people in the world.

But in the past few days, the shares of Dov Chaney’s company were buying and selling at its lowest for 75 cents – a decrease of almost 50% from just last week’s share price. The retail company said it has $120m debt and admitted to losing $30m a year.

The sales of its global shops fell 16% and the company might not be able to pay its loan from Lion Capital. In March 2009, the British private equity firm rescued American Apparel from another financial crunch. American Apparel could lose control of the business if Lion Capital forces the retailer into receivership.

There are number of reasons why the company may have to file for bankruptcy. For one, it had a major expansion during its first five years. The company incurred too much debt and it is only now becoming evident.

However, it is not the only clothing company to have hit hard knocks. Several major fashion chains of stores have experienced similar downfalls previously and recovered. Recently, Abercrombie & Fitch’s sales fell 23%, Saks suffered a 14.7% drop, and Niemann Marcus 21.4%.

American Apparel may have to declare bankruptcy if it doesn’t fulfill its duties in the coming months. The struggling retailer has around $13 million cash at hand, and could go into default if it does not generate enough money or refinance its loan. The clothing company has announced that it would close stores in order to cut costs.

If you are struggling to pay your creditors, bankruptcy may provide some debt relief. Whether bankruptcy can solve your problems depends on several factors. You can speak to a San Antonio Attorney to learn more about your options.

 

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