American Apparel, Inc. (NYSE Alternext: APP) has confirmed reports of an outside private equity investment. The retail apparel player got $80 million with Lion Capital LLP. This should satisfy most of the concerns which have been around the company.
This financing is secured second lien notes with a 15% coupon which matures December 31, 2013 with detachable warrants. The transaction is expected to close today. The notes are payable in cash or payable in-kind at the company’s option. These notes are also callable at any time at par plus accrued interest.
The notes provide for a security interest in all assets of the company and its subsidiaries, subject to prior liens under the existing revolving credit facility. Lion Capital also received warrants for an aggregate amount of 16 million shares of American Apparel common stock. They can be exercised at a strike price set at a 5% premium to the 30-trading day average of $2.00 per share with a March 2016 expiration. This would equate to a pro forma ownership in American Apparel of approximately 18%.
Neil Richardson and Jacob Capps of Lion Capital intend to join the board of directors of American Apparel. American Apparel will use the proceeds to retire its existing second lien credit facility. American Apparel will not issue any additional warrants to SOF Investments (prior lien holder). The remaining proceeds will be principally used to reduce the outstanding balance under its revolving credit facility, repay a portion of a shareholder note, pay fees and expenses related to the transaction, and for working capital purposes.
The early indications show American Apparel up 17% at $1.75 in early pre-market trading indications. Its 52-week trading range is $1.20 to $10.25.
Jon C. Ogg