For just a few million dollars, you could be the savior of American Apparel — or maybe, at least, its CEO, Dov Charney.
The controversial founder of the cash-strapped clothier — who lately has been battling lawsuits, including one from a former employee who accused him of keeping her as a sex slave — is scrambling to secure a cash infusion this week of as little as $5 million, sources told The Post.
But Charney may be in more danger of becoming a casualty of the liquidity crisis than the company, according to several sources close to the situation.
That’s because key lenders Lion Capital and Bank of America are “fed up” with Charney’s “control-freak” management style, said one financial source, noting it has left the clothing chain in disarray and helped fuel an $86 million loss last year.
Bank of America didn’t respond to a request for comment yesterday. But the lender has “tightened the noose” on the company’s credit line amid the cash crunch, according to a source.
Meanwhile, British-based Lion — whose partners Lyndon Lea and Neil Richardson stepped down from American Apparel’s board last month — will lend the retailer additional funds only on the condition that Charney surrenders control, according to the source.
If American Apparel’s cash crunch worsens, executives are mulling cost-saving measures including a two- to four-week shutdown of the company’s Los Angeles factory, as well as a massive, nationwide clearance sale at its stores to liquidate excess inventory.
But American Apparel may still be able to skirt bankruptcy without the help of a major cash infusion, as cost cuts and improving sales of spring fashions and new jean designs are boosting the balance sheet, according to people close to the company.
“Right now, they’re modestly cash-flow positive,” said one source briefed on the retailer’s finances. Cost cuts appear to have fueled the positive swing and comparable sales are still stuck in negative territory, but “the outlook for spring and summer is actually optimistic,” the source said.
A better question, sources say, may be whether Charney will survive the season as the man in control.
“Dov is a genius when it comes to designing and marketing clothes — a very rare talent,” said one source close to the situation. “But the lenders want him out of the financial chain of command.”
In a switch for the better, critics note that Charney recently hired a team of respected retail veterans, and has shown an unprecedented willingness to delegate authority.
But with Chapter 11 still a danger, it may be too little, too late. Last month, American Apparel was forced by accounting rules to publish a “going concern” warning, signaling that it may be forced to file for bankruptcy.
In a bid to remove the worrisome warning from its books, sources said, Charney is looking to secure an additional $10 million by the end of this month, when it faces a key test on debt covenants that could push it into default.
While Charney is looking to secure the funds in the coming days, “we’ve been hearing this for a couple of months now,” said one banker close to the situation. “I’ll believe it when I see it.”