Spandex-legging purveyor American Apparel Inc. (NYSE: APP) has worked some fresh flexibility into its capital structure, even as it blames further second-quarter sales declines on stale product.

American Apparel admits its future is up in the air in an Aug. 17 quarterly filing with the U.S. Securities and Exchange Commission. The company says there is substantial doubt about its ability to continue as a going concern, or without the threat of liquidation, because it may not have the cash to stay in business for the next 12 months.

That concession comes as bankruptcy rumors cloak the retailer, again, after July reports indicated it would not have the cash on hand to make a $13.9 million interest payment due on Oct. 15. This isn’t American Apparel’s first trip to the bankruptcy rumor mill – back in 2011, the company said in an SEC filing that it might end up in Chapter 11. For more on American Apparel’s history, see Can Lawsuit-Laden American Apparel Skirt Bankruptcy?

American Apparel had $11.2 million in cash as of Aug. 11 – not enough to make the $13.9 million interest payment due Oct. 15. The last time the retailer had to make the bi-annual interest payment on the $210.6 million in senior secured notes, in April, it had to borrow $15 million from New York hedge fund Standard General LP.

The clothier had also violated the minimum fixed charge coverage ratio and the minimum adjusted Ebitda covenants on its $50 million asset-backed revolving credit facility from Capital One Business Credit Corp.  Capital One assigned the loan to a lending syndicate, with Wilmington Trust NA as administrative agent, and existing creditors Standard General, Monarch Alternative Capital LP, Coliseum Capital LLC and Goldman Sachs Asset Management LP. 

Wilmington, which is waiving the covenant violations, is providing a $90 million asset-based revolving credit facility that matures on April 4, 2018. That loan includes the outstanding balance of $38.4 million incurred under Capital One’s ownership, SEC filings show. 

American Apparel, which is already mid-turnaround, says the financial uncertainty has it considering strategic and financial alternatives, including refinancing, raising new capital, amending or restructuring debt and considering other transactions.

That announcement comes as the company faced further sales and profit declines for the second quarter. Net sales decreased 17.2 percent to $134.4 million from $162.4 million. Gross profit for the second quarter decreased 25.3 percent to $61.5 million from $82.4 million for the same quarter last year, according to SEC filings.

American Apparel says it didn’t carry enough new styles during the spring and summer sales seasons, so sales declined. The company also says about $3 million of the sales decline is attributable to store closures, which are part of the business’ broader restructuring.

The retailer announced it was implementing $30 million in cost-cutting initiatives in July, including store closures. Updating the apparel lineup is also part of the struggling brand’s turnaround plan, as it tries to shed an overtly sexual image.

American Apparel has been working to distance itself from ousted founder Dov Charney, who created the Los Angeles-based chain in 1989. Charney has been slapping American Apparel with lawsuit after lawsuit since he was removed from his post in June 2014, and then again in December, amid allegations of sexual misconduct. During that time, Standard General picked up a significant American Apparel stake and Charney handed them his voting power in exchange for an internal review of his conduct. The process ended in his termination, and overlapped with American Apparel’s fielding of a buyout offer from New York private equity firm Irving Place Capital.

For the previous edition of Turnaround Tuesday, see Oil Firm Escalera Reaches Forbearance, Delays Possible Bankruptcy.  For a list of struggling companies, see Mergers & Acquisitions Distressed Company Watch List

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