American Apparel backer buys $10-million loan, helps prevent default

American Apparel backer Standard General buys loan to retailer, helps stave off default, potential bankruptcy

A New York investment group has bought a $10-million loan as part of its efforts to shore up  American Apparel Inc.'s finances and keep it from teetering into bankruptcy.

Standard General, which controls a nearly 44% stake in the Los Angeles clothing firm, bought the loan from lender Lion Capital this week, according to a Friday filing with the Securities and Exchange Commission.

By purchasing the loan, the investment firm has helped American Apparel ward off a potential series of devastating defaults with other lenders.

Lion Capital demanded repayment after the American American board ousted Chief Executive Dov Charney in June. That could have triggered repayment demands on additional debts, including a $30-million loan from Capital One and $206 million in senior secured notes. 

Last week, American Apparel inked a deal with Standard General that would provide much needed financial help. The investment firm committed up to $25 million in assistance; up to $15 million of that offer remains after the purchase of the Lion loan.

As part of the deal, American Apparel agreed to replace all but two members of its current  board. Standard General will choose three new directors, and two additional members will be chosen jointly by the retailer's current board and the investment firm.

Charney also agreed to resign as a director. He will be retained by the company as a consultant pending the results of an investigation into his personal behavior.

In ousting Charney, the American Apparel board cited misconduct, including his alleged misuse of company funds and allowing the posting online of nude photos of a former employee who was suing him.

Standard General gained a large stake in American Apparel through a cooperative buying agreement with Charney. The company has said it wants to save a company with a great brand and keep its manufacturing in the U.S.

The investment firm has emphasized that it has no allegiance to Charney.

Follow Shan Li on Twitter @ShanLi

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