By Andria Cheng
NEW YORK (Dow Jones) -- American Apparel Inc., the teen retailer
known for its provocative advertising, has agreed to sell about 18%
of the company to private-equity firm Lion Capital as it faced
deadline pressure for some loan obligations.
Los Angeles-based American Apparel (APP) has been under growing
pressure, including facing a loan obligation Friday and possibly
filing for Chapter 11 bankruptcy protection, after it took on
$111.6 million in debt to help finance its rapid expansion over the
five years.
American Apparel, headed by its controversial founder Dov
Charney, reportedly owes SOF Investments $51 million and Bank of
America $61 million. Charney has been forced to lend the company
$6.5 million since December to keep products flowing into stores
and to finance the opening of new stores, according to a report in
Women's Wear Daily.
Shares of American Apparel rose 44 cents to $1.93 in morning
trading.
With more than 260 stores in 19 countries, American Apparel has
been able to attract shoppers with its line of U.S.-made T-shirts,
jersey dresses and shiny leggings.
The company said it would use the proceeds from Lion Capital's
$80 million investment to retire its second-lien credit line with
SOF Investments.
Remaining proceeds will be use to pay American Apparel's
revolving credit line, repay a portion of a shareholder note and
other fees and expense. SOF is an affiliate of investment firm MSD
Capital, which manages the capital of Dell Inc.'s (DELL) Chief
Executive Michael Dell and his family.
London-based Lion Capital, whose previous investments have
included luxury shoe label Jimmy Choo, received warrants that, if
converted to common stock, would equal to an 18% ownership of
American Apparel.