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American Apparel facing large loan repayment

First Published Jun 27 2014 11:49AM      Last Updated Jun 27 2014 11:49 am

The pressure is mounting at American Apparel, the retailer of U.S.-made clothing that fired its founder last week.

One of the company’s longtime lenders, Lion Capital, asked Thursday that a loan of about $10 million be repaid, according to a person familiar with the situation.

The terms of the loan - which came with a 20 percent interest rate - said that if the founder, Dov Charney, ceased to be chief executive, the loan could be declared in default. Two people familiar with the negotiations said that the loan was not yet in default and that talks were continuing.

American Apparel, which announced this week that it had hired investment bank Peter J. Solomon, has indicated that if the Lion Capital loan comes due, it will be able to pay it off.



If the Lion Capital loan is declared in default, that could trigger the default of another company loan, with Capital One Business Credit Corp.

This move by Lion came just more than a week after the American Apparel board of directors shocked its founder by forcing him from the company’s helm. The board offered him the choice to leave quietly and stay on as a consultant, or else to be fired. Charney had been a controversial chief, accused several times of sexual harassment and sued by employees who said he had created an unsafe work environment rife with innuendo and sexual misconduct.

American Apparel did not tell Lion Capital that the move was coming, and the person with knowledge of the firm’s deliberations said it had been difficult to get its questions answered by the American Apparel board since Charney was pushed out.

American Apparel has struggled with high interest rates and a high debt burden, a sunken stock price, and management problems of late. But Allan Mayer, co-chairman of the board, has said that it was Charney’s conduct that led to his ouster, not the company’s financial performance, which has recently improved.

Charney’s lawyer, Patricia L. Glaser, has called the firing "illegal" and the claims against her client "baseless."

 

 

 

 

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