Lion Capital has agreed to acquire an 18% stake in clothing retailer American Apparel (AMX: APP) for $80 million in secured second lien notes maturing December 31, 2013 with detachable warrants.
American Apparel, Inc. (NYSE Alternext US: APP), a vertically integrated manufacturer, distributor, and retailer of branded fashion basic apparel, today announced that it had entered into a private financing agreement with Lion Capital LLP (“Lion Capital”) for $80 million in secured second lien notes maturing December 31, 2013 with detachable warrants. The transaction is expected to close today.
“We are excited that Lion Capital, a leading private equity firm in the consumer sector, has decided to make a substantial investment in American Apparel. In light of unprecedented market conditions, we believe Lion Capital’s investment serves as a strong endorsement of our company and the tremendous potential of our brand,” said Dov Charney, Founder and CEO of American Apparel. “This investment provides us with a long term solution for our capital structure and an enhanced ability to grow our brand both domestically and internationally over the coming years. Lion Capital’s singular focus on the consumer sector and their extensive experience with growing consumer brands makes them an ideal partner as American Apparel continues to develop into a leading, global apparel brand.”
“We are extremely pleased to have the opportunity to partner with Dov and the management team at American Apparel. The strong growth of the brand over the last few years is a testament to Dov’s vision and business acumen and we believe the company will continue that exciting growth into the future, both in the United States and around the world,” said Neil Richardson, Partner of Lion Capital. “American Apparel fits well with our focus of investing in strong, differentiated consumer brands and we look forward to a successful and enjoyable collaboration with Dov and his team.”
The notes will have a coupon of 15 percent, payable in cash or payable in-kind (PIK) at the Company’s option. The notes are 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 with respect to such assets under the Company’s existing revolving credit facility.
Lion Capital also received detachable warrants for an aggregate amount of 16 million shares of the Company’s common stock, exercisable at a strike price set at a 5 percent premium to the 30-trading day, trailing stock price average as of market close on March 12, 2009, which equates to $2.00 per share. The warrants expire in March 2016. Assuming conversion of the warrants into common stock, the warrants would equate to a pro forma ownership in American Apparel of approximately 18%.
In connection with the investment, Neil Richardson and Jacob Capps of Lion Capital intend to join the board of directors of American Apparel.
American Apparel will use the proceeds of the investment to retire in full the outstanding amounts on the Company’s existing second lien credit facility with SOF Investments, L.P. – Private IV, an affiliate of MSD Capital, L.P. Consequently, American Apparel will not issue any additional warrants to SOF Investments as provided in the December 2008 amendment to the SOF Investments credit agreement. American Apparel will use the remaining proceeds principally to reduce the outstanding balance under the Company’s revolving credit facility, repay a portion of a shareholder note, pay fees and expenses related to the transaction, and for working capital purposes.
Financo Inc. served as financial advisor and Skadden, Arps, Slate, Meagher & Flom LLP served as legal advisor to American Apparel in this transaction. Simpson Thacher & Bartlett LLP served as legal advisor to Lion Capital.
About American Apparel
American Apparel is a vertically integrated manufacturer, distributor, and retailer of branded fashion basic apparel based in downtown Los Angeles, California. As of February 28, 2009, American Apparel employed approximately 10,000 people and operated more than 260 retail stores in 19 countries, including the United States, Canada, Mexico, Brazil, United Kingdom, Austria, Belgium, France, Germany, Italy, the Netherlands, Spain, Sweden, Switzerland, Israel, Australia, Japan, South Korea, and China. American Apparel also operates a leading wholesale business that supplies high quality T-shirts and other casual wear to distributors and screen printers. In addition to its retail stores and wholesale operations, American Apparel operates an online retail e-commerce website at http://www.americanapparel.com.
About Lion Capital
Lion Capital is a leading investment firm focused on the consumer sector. Headquartered in London, the firm’s principals have been investing private equity capital since the early 1990s and have invested nearly €4.5 billion of equity in transactions totaling over €17 billion in value. Representative brands that Lion Capital has invested in include Jimmy Choo, Kettle Foods, Orangina Schweppes and Weetabix. The firm works in partnership with the management of the companies in which it invests to help these businesses achieve their full growth potential. For more information please visit: www.lioncapital.com.