Capital Markets

Clothier Wraps Up New $80 Million Financing

American Apparel says the investment, from Michael Dell's capital firm, underscores the company's popular appeal and potential.
Stephen TaubMarch 13, 2009

Edgy clothing maker and retailer American Apparel Inc. has landed an $80 million private financing agreement with Lion Capital LLP, which sent its stock surging by 30 percent.

The proceeds will go toward retiring the company’s second lien credit facility with SOF Investments, reducing the outstanding balance under its revolving credit facility, repaying part of a shareholder note, and working-capital purposes.

“In light of unprecedented market conditions, we believe Lion Capital’s investment serves as a strong endorsement of our company and the tremendous potential of our brand,” says Dov Charney, founder and CEO of American Apparel. “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.”

Lion Capital is a private-equity firm that specializes in the consumer sector. SOF Investments is affiliated with MSD Capital LP, which is controlled by Dell Inc. CEO Michael Dell.

The new secured second lien notes from Lion, which mature on December 31, 2013, come with detachable warrants. The notes have a 15 percent coupon, payable in cash or in-kind at the company’s option. The notes are callable at any time at par plus accrued interest.

Lion Capital also received detachable warrants for an aggregate 16 million shares of the company’s common stock, exercisable at a strike price set at a 5 percent premium to the 30-trading-day, trailing stock price average as of market close on March 12, which equates to $2 per share, according to the announcement. The warrants expire in March 2016.

Assuming conversion of the warrants into common stock, they would equate to a pro forma ownership in American Apparel of about 18 percent. In addition, under the deal Neil Richardson and Jacob Capps of Lion Capital plan to join American Apparel’s board of directors.