August 11, 2015 / 10:44 PM / 2 years ago

American Apparel says may not have enough funds for next 12 months

(Reuters) - Struggling teen apparel retailer American Apparel Inc APP.A said it does not expect to have sufficient funds to run the company for the next 12 months and warned it may not be able raise additional capital.

A man walks past an American Apparel store in New York June 19, 2014. REUTERS/Brendan McDermid

The company, which is being sued by founder and former CEO Dov Charney, said it could breach covenants related to a credit facility.

American Apparel said it was in talks with the lender —Capital One Business Credit Corp — to waive the non-compliance, but said there could be no guarantee of a waiver.

Failure to obtain a waiver could have an “adverse effect” on its financial condition, the company said.

The company also said it would not be able to file its second-quarter results before the deadline due to the potential covenant breach.

American Apparel has been posting losses for last five years. During that period, its market value shrank to $90 million from $540 million.

The Los Angeles, California-based retailer, known for manufacturing its products in the United States, launched a restructuring plan in July that involves slashing costs through job cuts and store closures.

The company is also trying to emerge from a showdown with Charney, who was ousted last year for allegedly misusing company funds and failing to stop a subordinate from creating defamatory blog posts about former employees.

The retailer also warned on Tuesday that existing and any new investors could suffer substantial or total losses of their investment in its common stock.

American Apparel’s stock had fallen nearly 80 percent this year to Tuesday’s close of 20 cents.

Reporting by Ramkumar Iyer in Bengaluru; Editing by Saumyadeb Chakrabarty

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