Debt-stricken American Apparel may be rescued by another consortium in the next few months.
Negotiations could lead the company to file for a second bankruptcy, because an American Apparel buyer would be allowed to leave behind liabilities in billions of dollars, including over 200 store leases, the sources said.
Should an acquisition occur, American Apparel would consider relocating its factories outside of the Los Angeles vicinity, where labor costs are more expensive than other parts of the U.S., but it would not make a deal with a licensor to have its products made overseas, one of the sources said.
American Apparel’s U.S. production facilities are crucial to its “Made in the U.S.A.” market image. According to former American Apparel CEO Dov Charney, a licensing deal may result in plant and store closures, which would leave many of the company’s workers unemployed. When American Apparel filed for bankruptcy in October of last year, it had more than 4,600 employees.
In August, American Apparel hired investment bank Houlihan Lokey Inc., to begin a confidential sale process. This decision followed American Apparel’s departure from Chapter 11 bankruptcy in February, after the Delaware bankruptcy court approved its reorganization plan on Jan. 27.
Due to the confidentiality of these early-stage talks, there is no guarantee that a sale agreement will be reached. An American Apparel spokeswoman declined to comment to Reuters and spokespeople for Authentic Brands and Iconix did not respond to requests.
“I’m saddened to hear the news,” Charney told Reuters. “I think it could be devastating for the Los Angeles community.”