The Troubled Apparel Renegade Is Less Sexy without Its Founder, Says Investor Lion Capital
Dov Charney has been working overtime calling in favors since his removal as chairman of American Apparel. It looks like he re-partnered with hedge fund Lion Capital LLP to work through the holiday weekend. Lion is threatening to call in its $10 million loan to American Apparel Inc. (or at least speed it up) and they want answers by Monday morning. American Apparel has lost $260 million since 2010, so in perspective, Lion’s impatience sounds contrived, yet they have insisted on meeting with American Apparel’s largest shareholder, another hedge fund, Standard General immediately.
Why would New York-based Standard General forego a good 4th of July weekend to meet with a British-based hedge fund? In Lion’s loan agreement there was a stipulation that if Charney left the company, it would be in default. That creates a small problem for American Apparel, a company bleeding money and living for the better part of a decade on loan guarantees. Capital One Financial Corp’s for example, has a cross-default provision in its $50 million credit line contract. Basically that means that if the Lion loan situation isn’t resolved Capital One can pull its pledge. Since American Apparel has drawn only $30 million of the available $50 million, that means there is $20 million still at stake. So Lion Capital (and Charney) can influence even the money they don’t control.