American Apparel lender demands its $10 million back

American Apparel lender Lion Capital is demanding repayment of its $10-million loan

American Apparel Inc. lender Lion Capital reportedly is demanding full repayment of its $10-million loan after negotiations between the two sides failed.

The Los Angeles retailer has been in discussions with London company  Lion Capital following the ouster of Chief Executive Dov Charney last month. A provision in the lending agreement with Lion Capital allows the investment firm to ask for immediate payment if Charney no longer serves as CEO.

American Apparel missed an initial deadline Friday to repay the loan, and Lion Capital is now giving notice to the retailer that it is accelerating the loan, according to Bloomberg news service, citing an unnamed source. Lion Capital wants Charney to return to the company as chief executive, the report said.

American Apparel's board fired Charney as chairman and suspended him as chief executive June 18 pending "an investigation into alleged misconduct." The retailer warned that the move may trigger defaults on nearly $40 million in loans. A default on the loan from Lion Capital could trigger a separate default on $30 million from Capital One.

A person familiar with the matter said Lyndon Lea, co-founder of Lion Capital, has supported Charney's reign as chief executive and would support his reinstatement as head of the retailer he founded roughly two decades ago.

American Apparel could be saved by a cash infusion from Standard General, the New York hedge fund that controls a 43% stake in American Apparel, after striking a deal with Charney to buy shares. Standard General said last week that it was looking at ways to revamp the company, including introducing new board members and providing capital to help avoid a bankruptcy or liquidation.

American Apparel co-Chairman Allan Mayer said the company has enough funds to repay the loan if Lion Capital demands it.

Even if American Apparel manages to pay off the Lion loan, it is facing a host of other financial problems. The company has lost nearly $270 million in the last four years and is more than $200 million in debt. It is facing an interest payment of $13.5 million to bondholders in October.

Follow Shan Li on Twitter @ShanLi

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