April 21 (Bloomberg) -- American Apparel Inc., the Los Angeles clothier at risk of running out of money, has received board approval to raise at least $15 million from a group of private investors, said four people familiar with the process.
The company will sell stock to the group at 90 cents a share, said the people, who asked not to be identified because the terms aren’t public. That price is a discount of about 25 percent from yesterday’s close. The agreement, which could be announced today, includes stock warrants that could bring the value of the investment to about $40 million, they said.
Michael Serruya, co-founder of CoolBrands International Inc., which once operated the Chipwich and Eskimo Pie brands, is part of the investment group, the people said. He didn’t respond to calls seeking comment.
The cash eases the threat of insolvency after the retailer, founded by Dov Charney, said last month that it’s at risk of filing for protection from creditors without better liquidity or an operational improvement. American Apparel, known for its colorful t-shirts and provocative ads, aims to almost double sales to $1 billion eventually by expanding its brand, improving its distribution network and boosting wholesale revenue.
American Apparel climbed 3 cents, or 2.5 percent, to $1.24 at 4:01 p.m. in NYSE Amex trading for the highest price since Jan. 21. The shares have dropped 25 percent this year. The stock traded at an all-time closing high of $15.80 in December 2007.
The retailer, which had a net loss of $86.3 million in 2010, has repeatedly amended loan agreements with Lion Capital LLP to avoid breaching debt covenants. Charney, also the chairman, chief executive officer and the majority shareholder, tried to shore up the company’s finances last month by paying about $2 million for 1.8 million shares in a private placement, according to regulatory filings dated March 24.
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