Moody's Investors Service on Wednesday cut American Apparel's
rating one notch further into junk territory, citing a higher
likelihood the company will default on its loans.
The downgrade to Caa3, nine notches below investment grade,
comes a day after the retailer warned it had about $13 million of
available cash—roughly the amount of its October interest
payment.
The retailer also said it would miss a regulatory deadline to
report second-quarter results after identifying potential
violations of the terms of its credit line with Capital One. The
company has been staving off bankruptcy amid a protracted battle
with ousted founder and former chief executive Dov Charney .
The rating firm said American Apparel remains under review for
further downgrade. "We believe that the likelihood of some sort of
restructuring ahead of the upcoming October interest payment on the
bonds is acute," Moody's Vice President Charlie O'Shea said in a
statement.
"The fact that Standard General intends to step into Capital
One's shoes as revolver provider by purchasing its interests
further heightens the risk of a restructuring as the specter of a
loan to own scenario increases, which we believe would
significantly impair existing bondholders," Mr. O'Shea said.
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