By Jeffrey Dastin
July 8 Buying time to repay a loan, American
Apparel Inc insisted on Tuesday that Dov Charney is
still its chief executive, even though it effectively escorted
the scandal-tinged founder out the door last month.
In a company filing, the retailer touted a technicality to
dispute Lion Capital's claim that it has defaulted on a $9.9
Lion Capital, a British investment firm, requested repayment
after American Apparel said on June 18 it planned to terminate
Charney for allegedly misusing company funds and helping spread
nude photos of an ex-employee on the Internet. Lion Capital had
the right to recall its loan if American Apparel's management
Not so fast, American Apparel said in the filing. Charney
has only been suspended as president and chief executive, and he
would retain those titles for a month until July 19.
American Apparel also said in the filing it had the right to
seek damages from Lion Capital "for asserting an invalid
acceleration" of the date the loan was due. The $9.9 million
loan was originally set to mature in 2018.
American Apparel declined to comment beyond what it said in
Tuesday's filing. A spokesperson for Lion Capital also declined
The retailer said terms of its credit line barred it from
using the funds to pay back Lion Capital, but it was seeking an
exception, according to the filing. If its request for the funds
is rejected, however, there could be "a material adverse effect"
on the company and its business, it said.
American Apparel is in talks with other sources that may
help the retailer repay the loan, it added.
Standard General, a hedge fund that acquired a 43 percent
stake in American Apparel from Charney, could help the parties
reach a deal. The retailer has also hired investment bank Peter
J. Solomon to help it provide access to capital.
Failing to pay the loan could trigger default on American
Apparel's $50 million credit line with Capital One Business
Credit Corp, it had said in a previous filing.
The retailer had more than $250 million in debt but only
about $16.7 million in cash at the end of March, according to
its latest earnings report.
One of American Apparel's largest shareholders, 1832 Asset
Management LP, sold its entire 6.6 percent stake in the company,
according to a separate filing on Tuesday. The announcement
comes days after FiveT Capital reported reducing its shares to
3.19 percent from about 12.7 percent in April.
A shareholder also sued American Apparel board members
Monday for failing to stop Charney's misconduct despite
"numerous red flags," according to the lawsuit. The board
currently is in talks with Standard General to determine the
American Apparel stock dropped more than 5 percent to close
at about 84 cents on Tuesday.
(Reporting by Jeffrey Dastin in New York and Siddharth Cavale
in Bangalore; Editing by Jeffrey Benkoe, Jilian Mincer and Tom