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American Apparel strikes rescue deal

Article By: ,  Financial Analyst
July 10, 2014 5:15 PM

US clothing retailer American Apparel has struck a last-minute financing deal with its largest shareholder.

After a three-week battle over the future of the company, the struggling retailer agreed yesterday (July 9th) to remake its board and to try to shore up the company’s finances.

The agreement also includes a commitment to keeping manufacturing in the United States, the BBC reports.

Five of its seven board members, including company founder Dov Charney, will step down in return for an immediate loan of $25 million (£14.6 million) from hedge fund investor Standard General, with the money used to pay back creditor Lion Capital, which claims they defaulted on a $10 million loan.

According to a document filed with the Securities and Exchange Commission, an investigation that the current directors began into the conduct of Mr Charney, the company’s controversial founder, will continue. 

The company's future was called into question after Mr Charney was pushed out of his role as American Apparel's chairman and chief executive officer for alleged misuse of corporate funds and sexual harassment.

FTI Consulting, the company in charge of the investigation, is reportedly expected to submit its findings by the end of the month.

Based on the inquiry’s findings, members of the new board will decide whether Mr Charney will be reinstated in the ranks of the company.

"This truly marks the beginning of an important new chapter in the American Apparel story," American Apparel co-chairman Allan Mayer said in a statement.

"With the support of Standard General, we are confident the company will finally be able to realise its true potential."

American Apparel has been unprofitable since 2010. Plagued by operational issues and management problems in its upper ranks, it lost $270 million in its last three fiscal years. Its stock, worth $15 at the end of 2007, traded below 50 cents this spring.

However, on Wednesday, the company’s stock gained more than five per cent in after-hours trading and today – as of 10.25 ET in New York – American Apparel Inc was up another 4.66 per cent to 0.8891.

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