Future of American Apparel Factory in Question

American Apparel’s massive factory and corporate headquarters, located at 747 Warehouse St. near downtown Los Angeles, is currently in a state of limbo.

In late March, building owner Meruelo Maddux Properties Inc. filed for Chapter 11 bankruptcy protection and included the apparel factory as part of its assets, which also include about 45 other properties.

In a March 26 statement disclosing the filing, Meruelo Maddux officials said the bankruptcy status will not affect tenants. The company also disclosed that it has stopped making payments on 26 of 30 loans outstanding.

American Apparel’s lease on the building, known for its huge “Made in Downtown L.A.” banner, expired at the end of 2008. The company currently is renting on a monthly basis, Maddux officials said. The companies are in negotiations for a new lease, but Maddux officials said in financial statements that “there are no assurances that we will be successful in procuring a new lease.”

Meanwhile, American Apparel has been facing its own financial challenges as it recently renegotiated several of its credit facilities. It is scheduled to receive an additional $80 million in funding from Lion Capital LLP in London, which may result in Lion taking an 18 percent equity share in American Apparel. Two of the fund’s executives have joined American Apparel’s board. Company officials said the funding will be used to restructure existing debt.

Chairman and Chief Executive Dov Charney said the infusion will provide American Apparel with a long-term solution for its capital structure. Shortly thereafter, he began buying back large amounts of the company’s stock totaling $2.67 million, which is usually an indication of confidence for future growth.

American Apparel is Maddux’s largest leaseholder. Maddux’s holdings include many of the produce-district buildings along Alameda Street in downtown Los Angeles.

Meruelo Maddox reported a loss of $85.8 million, or 98 cents a share, in the three months ending Dec. 31, compared with a loss of $2.6 million, or 3 cents a share, in the same period last year. —Robert McAllister