American Apparel gets $80-million lifeline from Lion Capital

American Apparel Inc said on Friday that it had received about $80 million in financing from British private equity firm Lion Capital LLP to pay off a credit facility with SOF Investments LP. The hip clothier's shares soared after the information.

Lion Capital, based in London, will receive notes with a coupon of 15 per cent, as well as detachable warrants equal to 16 million shares, American Apparel said in a statement. If converted, the warrants would equal about 18 per cent ownership of the Los Angeles-based clothing chain.

The proceeds will be used to retire outstanding obligations under a facility with SOF Investments. SOF is an affiliate of New York-based MSD Capital LP, controlled by Michael Dell, chief executive officer of computer maker Dell Inc.

Jacob Capps, a director at Lion Capital, and Neil Richardson, a partner, will join American Apparel's board.

American Apparel, which is known for brightly coloured basics, pro-labour policies and racy marketing, said the deal with Lion Capital involved secured second lien notes maturing December 31, 2013 as well as warrants.

American Apparel said that apart from repaying SOF, it also plans to reduce the balance of its revolving credit facility, repay a portion of a shareholder note, pay fees and expenses related to the deal, and fund its working capital needs.