Hedge Fund To Take Control Of American Apparel

Jul 8 2014 | 7:32am ET

The hedge fund working with American Apparel’s ousted founder is poised to take control of the struggling retailer under a deal struck yesterday.

As part of the agreement, which could be finalized today, Standard General will have a hand in picking five of the seven members of American Apparel’s board. The hedge fund will appoint three by itself and will agree on two others with the company.

None of the five will be company founder Dov Charney, who has agreed to step down from the board. Under an agreement with Standard General, the hedge fund holds voting power over Charney’s 27% stake in American Apparel, in addition to its own 17%.

In exchange for control over the reconstituted board, Standard General will provide financial guarantees to American Apparel. That guarantee took on new urgency yesterday when private-equity firm and longtime American Apparel lender Lion Capital formally accelerated a $10 million loan, demanding its immediate repayment.

Lion had the right to make the demand in the event of a management shakeup, a clause triggered when Charney was fired as CEO last month. A default on the Lion loan could lead to a default on a larger $50 million line of credit from Capital One.

American Apparel has said it has the resources to repay Lion, and the New York Post reports that Standard General has agreed to refinance the loan and could pay off Lion as soon as this weeks. Talks between Standard General and Lion, mooted last week, apparently never took place.

Charney’s future at American Apparel remains uncertain pending an investigation into alleged financial irregularities and sexual harassment.

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