American Apparel Inc Spikes On Reports Of Funding Talks

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American Apparel Inc (NYSEMKT:APP) is reportedly talking with its largest shareholder, Standard General, about financing to pay off a loan that has come due and also replace its board members. That’s according to a weekend report from The Wall Street Journal.

American Apparel owes Lion Capital

Hedge fund Standard General holds 43% of American Apparel’s shares, which it helped embattled CEO Dov Charney buy. The fund is now said to be thinking about paying off the $10 million the retailer owes to Lion Capital LLP. The company has been at risk of defaulting on that loan since its board of directors suspended Charney last month. The board intends to fire him in 30 days after the review period required in his contract ends.

The Wall Street Journal’s sources said it still isn’t clear what form Standard General’s payment will take. Both sides have reportedly that under the terms of the deal, all of the board members other than the two co-chairmen will be replaced with people who have more experience in the clothing industry.

The sources also indicated that Charney’s time at American Apparel might not be finished. The company launched an investigation into his conduct, so it isn’t clear whether he will have a role with it in the future. If he is found not to be guilty of wrongdoing, then he might remain with the retailer, although he might not remain in the CEO role. Charney is accused of misusing company funds, not preventing nude photographs of a former worker from being published, and other allegations. The executive’s lawyer denies those allegations and has filed a petition to keep him from being fired.

American Apparel deals with crisis

American Apparel has been dealing with a chain of events that began when board members voted that Charney be stripped of his chairman title and told him that his position as CEO would be finished at the end of the required 30-day waiting period. It was Charney’s removal that put the clothing maker at risk of defaulting on the loan from Lion Capital. The firm is contractually able to call the loan in immediately if Charney is removed from the company.

Lion Capital reportedly demanded that American Apparel pay back the loan no later than July 4, but the clothing retailer didn’t pay, according to The WSJ’s sources. The firm now reportedly intends to demand repayment formally.

The loan from Lion Capital isn’t the only one that could be recalled with Charney’s removal. American Apparel owes $50 million to Capital One as well.

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