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American Apparel Raises New Financial Backing

(7/8/2014)

Top 40 supplier American Apparel (asi/35297) has come to an agreement with New York investment firm and hedge fund company Standard General to raise new financial support that would help to pay off a loan. The loan, provided by Lion Capital, officially came due when American Apparel ousted its founder and former CEO Dov Charney on June 18. As part of Lion Capital’s loan stipulations, the lender could call in the $10 million loan if Charney was removed.

Now, American Apparel has partnered with Standard General, the single largest holder of American Apparel shares, to acquire the financing to immediately re-pay the loan. Standard General currently owns 43% of the voting shares of the company, following a deal it made last week with Charney to acquire an additional 16% of the company. After his ouster by the American Apparel board, Charney had control of 27% of the voting shares of the company. He then struck a deal with Standard General to acquire the additional 16% of the shares to bring the Charney/Standard General group’s holdings to 43%. But as part of that deal, Charney had to give up his voting rights to all 43% of the shares to Standard General.

The hedge fund is now trying to negotiate those assets into even more increased influence at American Apparel. As part of the talks, the two sides also have reached an agreement in principle to replace all of the company's board – except for its two co-chairmen, who were influential in Charney’s firing – with directors who have more industry experience. The two sides reportedly signed an official agreement last night, and Standard General will now have the ability to nominate a new slate of directors for the American Apparel board.

Still unclear is what role, if any, Charney will play at the company going forward. Standard General is reportedly conducting an investigation into his actions and how he ran American Apparel. Depending on the result of that investigation, Charney could reportedly return to the company in some capacity, though not necessarily as CEO, industry analysts say.

Following the company's annual meeting on June 18, the American Apparel board voted unanimously to replace Charney, a member of the Counselor Power 50 since its inception in 2006, as chairman immediately and "notified him of its intent to terminate his employment as president and CEO for cause.” The company later said that Charney misused company funds, an allegation that Charney’s lawyer called baseless.



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