American Apparel (APP) Downgraded to 'Caa3' by Moody's

Moody's Investors Service downgraded ratings of American Apparel (NYSE: APP) ("American Apparel"), including the Corporate Family rating, which was downgraded to Caa3 from Caa2, and left the ratings on review for further downgrade.

Issuer: American Apparel, Inc.

Downgrades:

.... Probability of Default Rating, Downgraded to Caa3-PD from Caa2-PD; Placed Under Review for further Downgrade

.... Corporate Family Rating, Downgraded to Caa3 from Caa2; Placed Under Review for further Downgrade

....Senior Secured Regular Bond/Debenture, Downgraded to Caa3(LGD3) from Caa2(LGD3); Placed Under Review for further Downgrade

Outlook Actions:

....Outlook, Changed To Rating Under Review From Negative

RATINGS RATIONALE

"Today's rating actions are in reaction to the company's filing yesterday for an extension of its Q2 10Q, which was made necessary due to potential non-compliance with the covenants under its Capital One revolving credit facility at second quarter-end," stated Moody's Vice President Charlie O'Shea. "We believe that the likelihood of some sort of restructuring ahead of the upcoming October interest payment on the bonds is acute. The company's liquidity is presently untenable given the possible lack of revolver access due to the potential covenant breach, which further exacerbates what is an unsustainable capital structure at current levels of operating performance. 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. Our review will focus on the company's progress as it deals with its myriad liquidity and operating issues, particularly as they relate to the ability to make the upcoming $13 million interest payment."

American Apparel's Caa3 Corporate Family Rating highlights the company's fragile liquidity, as well as its unsustainable capital structure at present levels of operating performance. In addition, the ratings continue to consider the ongoing negative effects of its protracted corporate governance issues. Given the significant liquidity, operating, and governance issues that continue, an upgrade in the near term is unlikely. Ratings could be confirmed if the company is able to craft a reasonable solution to its liquidity challenges such that bondholders are not impaired. Ratings could be downgraded if liquidity weakens further, which would increase the potential for a distressed exchange or other form of default.

The principal methodology used in this ratings was Global Retail Industry published in June 2011. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

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