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June 24 Clothing maker American Apparel Inc APP.A has struck a deal with creditors and secured a high-profile billionaire investor, dodging a potential breach of debt covenants and sending its shares up 7 percent.
The agreement, announced on Thursday, came at the price of higher annual interest payments. A separate filing on Thursday showed that billionaire Ron Burkle now holds a 6 percent stake in the company, which is known for its shiny spandex leggings and cotton T-shirts.
Sources had told Reuters earlier this month that the ailing American Apparel, run by the outspoken, volatile Dov Charney, would manage to snag a much-needed lifeline from creditors.
The company, a staple of urban hipsters for "Made-in-USA" retro apparel, said on Thursday it had managed to amend its credit agreements, averting a potential violation of terms agreed to on borrowings.
But that agreement raised its annual interest payable to 17 percent from 15 percent.
The flamboyant Charney, who has repeatedly been sued for sexual harassment, remains the largest shareholder, with more than 53 percent of American Apparel shares.
American Apparel has run into numerous problems of late, from underperforming results to mass layoffs of illegal workers. It warned last month it may breach debt covenants, wiping nearly 14 percent off its share value.
The company has blamed its lackluster performance on "highly uncertain sales trends." Its same-store-sales, a key measure of retail health, declined 10 percent in the first quarter.
Its stock was down 43 percent year-to-date. The shares, which rose as much as 8 percent Thursday before closing down marginally at $1.77, were again up 7.3 percent to $1.90 in trading after the bell, following the stake disclosure.
On Thursday, the company said the credit amendment replaces a total debt to EBITDA (earnings before interest, taxes, depreciation and amortization) financial covenant with a minimum EBITDA financial covenant.
That essentially removed a cap on the amount of debt relative to EBITDA that the company can hold.
As part of the deal, lender Lion/Hollywood LLC will also be entitled to board representation and got warrants to buy 16 million shares at an exercise price of $2.00 each, the company said in an SEC filing.
In March of 2009, Lion had made a last-minute $80 million loan to American Apparel.
Burkle has acquired 4.3 million shares in the open market for about $5.9 million since June 10, viewing the shares as undervalued at the time, a filing with the U.S. Securities and Exchange Commission showed.
(Reporting by Vidya Lakshmi and Abhishek Takle in Bangalore; Editing by Vyas Mohan and Anthony Kurian)
