American Apparel Inc. (Los Angeles) is getting help for a debt problem through an agreement with London-based Lion Capital. Through the deal, Lion Capital will give the apparel retailer an $80-million infusion in exchange for two seats on American Apparel's board of directors and the right to buy an 18 percent stake in the company.
American Apparel says it will use a portion of the loan to retire its existing line of credit with SOF Investments, set to mature this month. In December, the company had to negotiate a three-month extension on its debt.
For its investment, Lion Capital will get second-lien notes that mature on Dec. 31, 2013, and carry an interest rate of 15 percent. The company also will receive warrants for 16 million shares of the company's stock at $2 a share; if the warrants are exercised, Lion Capital would own roughly 18 percent of the company.
In the past, Lion Capital, which was founded in 2004, has invested in such companies as Jimmy Choo, Kettle Foods and Orangina Schweppes. “In light of unprecedented market conditions, we believe Lion Capital's investment serves as a strong endorsement of our company,” says Dov Charney, American Apparel’s founder and ceo. “This investment provides us with a long-term solution for our capital structure and an enhanced ability to grow our brand both domestically and internationally over the coming years.”
American Apparel has more than 260 stores in 19 countries. Last month, the retailer reported its February same-store sales fell 9 percent compared with the same period last year. Until then, it was of few retailers to consistently post solid monthly sales figures.