American Apparel turns to Standard General in bid to skirt bankruptcy

American Apparel Forced To Layoff Over A Thousand Factory Workers
CHICAGO - SEPTEMBER 04: A pedestrian passes by and American Apparel store in the Wicker Park neighborhood September 4, 2009 in Chicago, Illinois. American Apparel Inc. plans to terminate about 1,500 employees in its Los Angeles factory, approximately one-quarter of the work force, following a probe by U.S. immigration authorities. (Photo by Scott Olson/Getty Images)
Photograph by Scott Olson — Getty Images

American Apparel (APP) may narrowly avoid bankruptcy as Standard General comes to the rescue, according to filings Monday.

The New York hedge fund, which has been working with ousted CEO Dov Charney, said it would back the retailer’s liquidity, helping it to put off the threat of bankruptcy for the time being as American Apparel fights accusations of default on a $10 million loan.

American Apparel has come under pressure from multiple angels as creditors have been calling in payments and Charney battles to get back into the top leadership.

Lion Capital, one of American Apparel’s longtime lenders, has served the company with a default notice and demanded immediate repayment of the outstanding loan amount of $9.9 million after negotiations for new terms failed. The loan’s initial terms came with an unusually high 20% interest rate and a provision that allowed for the loan to be called in if Charney was no longer in the top role, which is the basis for the July 7th default notice.

American Apparel disputes the current validity of the accelerated payment to Lion Capital since Charney’s employment isn’t terminated until July 19th. The retailer said it would seek approval from other lenders to use its revolving credit line to repay the balance. If that fails, then American Apparel would default on the date Charney leaves the company, according to the company’s recent filing.

The Lion Capital loan is also connected to a $50 million loan through Capital One — a default on the Lion line of credit could trigger a falling out with that loan as well.

The backing from Standard General would help gird American Apparel’s deteriorating financial situation. The retailer has netted about $270 million in losses since 2010 and has had to raise capital several times.

Standard General currently controls a 43% stake in the company after it entered an investment agreement with Charney last month. The investment bank is also in talks with American Apparel to reconstitute its board and strengthen its management.

Subscribe to Well Adjusted, our newsletter full of simple strategies to work smarter and live better, from the Fortune Well team. Sign up today.

Read More

Great ResignationInflationSupply ChainsLeadership