NEW YORK (Reuters)—Lion Capital has ordered American Apparel to immediately repay a $10 million loan, after the retailer failed to do so by a July 4 deadline, a source close to the matter said on Monday [July 7].
The ousting of American Apparel Chief Executive Officer Dov Charney more than two weeks ago prompted Lion Capital to demand repayment of a loan that was originally due in 2018.
In an unrelated matter, a shareholder named Tammy Federman sued Charney and American Apparel board members, saying they failed to take appropriate, timely actions despite knowing about Charney's misconduct, according to a case filed in a U.S. district court in California on Monday.
A spokesperson for American Apparel declined to comment on the Lion Capital loan and was not immediately available to comment on the lawsuit. Federman's lawyer was not immediately available for comment.
The embattled company had more than $250 million in debt at the end of the first quarter, according to a company filing.
It has a $50 million credit line under the Capital One Credit Facility containing "cross-default provisions" that could be triggered by a default on the Lion Capital loan.
American Apparel suspended Charney on June 18, alleging he misused company funds and helped spread nude photos of an ex-employee. Charney's lawyer filed a request for arbitration the following week in an effort to restore the 45-year-old founder to his role as chief executive.
The company adopted a "poison pill" on June 27, effectively halting stock acquisitions by Charney after he increased his share holdings with the help of hedge fund Standard General to a level approaching 43 percent.
The drama took an unusual twist when Charney handed over his entire stake and voting rights to Standard General in part because the American Apparel board refused to speak with Charney directly. Now American Apparel is in talks with Standard General to decide the retailer's future.
FiveT Capital, the retailer's second-largest shareholder, sold the majority of its American Apparel stock in response to the turmoil that faces the company, The New York Times reported on Thursday.
On Monday, American Apparel's stock price rose almost 2 percent to close at about 88 cents, its highest since June 27. In early January, the stock traded as high as $1.43.
By Jeffrey Dastin