April 26, 2011, 11:47 A.M. ET
By DREW FITZGERALD
American Apparel Inc. said it raised $14.9 million in rescue financing from a group of investors led by Canadian financier Michael Serruya and private-equity firm Delavaco Capital Corp., allowing the casual clothing retailer to meet obligations to its lenders for the time being.
Shares slid 11 cents, or 7%, to $1.47 in recent trading after a halt was lifted on the stock. They have dropped 54% over the past 12 months.
Liquidity problems have dogged American Apparel for most of the past year amid declining sales. The company first warned in May that it could fall out of compliance with its debt covenants before it narrowly averted a default.
Under the deal, the company will sell about 15.8 million shares of common stock at 90 cents a share to a group of private investors led by Serruya, the former chief executive of Canada's CoolBrands International Inc. The investors also can buy an additional 27.4 million shares at the same price within 180 days, subject to certain adjustments. The price represents a 43% discount to Monday's close. The company had about 73.8 million shares outstanding at the end of last year.
Meanwhile, American Apparel Chairman and Chief Executive Dov Charney will buy 800,000 more shares at the same price with the option to buy about 1.6 million more shares.
"We believe in the American Apparel brand and we believe in Dov Charney," Mr. Serruya said. "We are convinced that with adequate resources, Dov and his experienced management team will lead American Apparel to new heights."
Media reports had speculated the latest rescue amount could have been as low as under $10 million or as much as $43 million.
After Tuesday's financing, the retailer would still need to raise another $5 million to $10 million to survive, based on estimates The Wall Street Journal reported last week. The company hopes that an improving economy may limit any need for additional funds.
The company is still discussing amendments to its credit agreements with lenders Bank of America Corp. and Lion Capital. The Bank of America amendment is expected to increase American Apparel's minimum excess availability requirement to $12.5 million from $7.5 million, while the Lion amendment will likely expand Lion's anti-dilution protections with respect to its warrants. The amendments also are expected to waive the requirement that the year-end audit for fiscal year 2010 be provided without a "going concern" or similar qualification.
At the end of February, American Apparel had $5.3 million in cash, down from $7.7 million at the end of December, according to regulatory filings. The company recently warned it may not have sufficient liquidity to sustain operations and to continue as a going concern.
From The Wall Street Journal, online.wsj.com