Thursday, 27 October 2016
Last updated 27 min ago
Jul 9 2014 | 9:28am ET
Standard General and American Apparel continue to work on a deal that will give the hedge fund control of the struggling retailer, as a private-equity lender to the company has declared it in default.
Standard General, which controls 44% of American Apparel’s shares, and the company’s board had hoped to hammer out a final deal by last night. It does not appear that they achieved that goal.
Still, the outlines of an agreement have been reached, with all but two members of American Apparel’s board to be replaced—and with Standard General having a hand in the selection of all of them. In exchange, Standard General is to provide between $20 million and $25 million in financing as necessary, including a new loan to replace one called in by p.e. firm Lion Capital.
Lion has declared American Apparel in default on that loan, whose terms allowed it to accelerate payment in the event of founder Dov Charney’s departure. It claims that took place last month, when Charney—who is now working with Standard General—was fired.
American Apparel, which declined to repay the loan when first asked last week, rejected the formal default notice, arguing that Charney has only been suspended and won’t actually be fired until July 19. The CEO is under investigation for alleged financial irregularities and sexual harassment.
American Apparel added that it had the right to seek damages against Lion “for asserting an invalid acceleration.”
The acceleration of the $10 million Lion loan presents a problem for American Apparel: Defaulting on it would lead to a default on a $50 million line of credit from Capital One. But the terms of its loan with that bank also bar it from repaying the Lion loan in full.
Capital One, which reportedly backs Charney’s ouster, is said to be open to renegotiating that clause.
Standard General confirmed yesterday that it is in talks with American Apparel. It said that if the negotiations fail, it would consider a proxy fight to win control of the board.
At least one major American Apparel shareholder isn’t waiting for that: 1832 Asset Management reported yesterday that it had sold off its entire 6.6% stake in the company. The Canadian firm’s move follows that of hedge fund FiveT Capital, formerly American Apparel’s second-largest shareholder, which sold off three-quarters of its stake last month.