UPDATE 3-American Apparel gets $80 million investment

Fri Mar 13, 2009 11:34am EDT

* Lion Capital to give $80 mln in financing

* Firm to get warrants to buy 18 pct of company

* Lion Capital receives two board seats

* American Apparel shares up 30 pct (Adds analyst note)

By Martinne Geller

NEW YORK, March 13 (Reuters) - American Apparel Inc (APP.A) said on Friday that it received about $80 million in financing from British private equity firm Lion Capital LLP, and the clothing maker's shares soared 30 percent.

American Apparel, which is known for brightly colored basics, pro-labor policies and racy marketing, said the deal with Lion Capital involved secured second lien notes maturing Dec. 31, 2013. Lion Capital also received warrants which, if exercised, would give it about an 18 percent stake in the company.

American Apparel said it planned to use the loan to repay outstanding amounts on an existing second lien credit facility with an affiliate of MSD Capital. It also plans to reduce the balance of its revolving credit facility, repay a portion of a shareholder note, pay fees and expenses related to the deal, and fund its working capital needs.

American Apparel, which manufactures its clothes in downtown Los Angeles, has been growing rapidly, with stores in 19 countries.

"This investment provides us with a long-term solution for our capital structure and an enhanced ability to grow our brand both domestically and internationally over the coming years," Chief Executive Dov Charney said in a statement.

Analyst Todd Slater of Lazard Capital said he estimates the new capital -- which has alleviated recent liquidity concerns --can fund the company for the next five years.

"The free cash flow generated by American Apparel over the next five years, even as it self-funds its own growth, should be more than enough to pay down all outstanding debt and allow for excess cash on the balance sheet," he added.

Under the deal, Lion Capital received warrants for 16 million shares of American Apparel stock with a strike price of $2 a share, or a 5 percent premium to their trailing 30-day average.

Exercising the warrants would translate to about an 18 percent stake in the company, whose shares closed at $1.49 on Thursday on the American Stock Exchange. The shares were up 45 cents at $1.94 after rising to $2.04 on the American Stock Exchange on Friday morning.

In addition, Lion Capital's Neil Richardson and Jacob Capps intend to join American Apparel's board.

That may help boost investor confidence about corporate governance at the company, Slater said.

London-based Lion Capital, which focuses on consumer investments, has invested in Jimmy Choo [TOWBRJ.UL], Kettle Foods [KETFD.UL], Orangina Schweppes and Weetabix WEEBF.PK. (Reporting by Martinne Geller in New York and Ratul Ray Chaudhuri in Bangalore; additional reporting by Alexandria Sage in San Francisco; Editing by Mike Nesbit, Lisa Von Ahn, Dave Zimmerman)