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American Apparel Is Facing Possible Bankruptcy

Image via <a href="http://nypost.com/2014/06/26/american-apparel-faces-cash-crunch-as-lender-declares-10m-default/">NY Post</a>
Image via NY Post

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The New York Post reports that American Apparel just ran into a situation it feared might happen after Dov Charney's ousting—one of the company's major loan lenders is declaring a default on a $10 million loan, demanding the money be repaid by July 4.

The company calling in the default, Lion Capital, "has been friendly with Charney" and hasn't been happy with the way the board has dealt with Charney's misconduct. "Lion is concerned that the board has not acted properly given that they are unable to present compelling evidence against Dov," an anonymous source told the Post.

In an earlier report filed with the Securities and Exchange Commission, American Apparel told the SEC that such a default "could cause us to become bankrupt or insolvent." Lion Capital is giving the company just one week to raise the $10M, a deadline so tight that they may have to increase their debt elsewhere in order to produce the money.

If that happens, the debt increase could trigger a default on American Apparel's Capital One credit line (which currently stands at $30 million) hence the very real possibility of bankruptcy.

· American Apparel lender declares $10M default after CEO's exit [NY Post]
· Dov Charney's Sketchiness Tallied in Leaked Termination Letter [Racked]
· American Apparel CEO Dov Charney Fired Over 'Misconduct' [Racked]