American Apparel Inc., the clothing retailer facing a possible cash shortfall, said it raised $14.9 million by selling stock to investors including founder and Chief Executive Officer Dov Charney.
A group led by Michael Serruya and private equity firm Delavaco Capital bought 15.8 million shares at 90 cents each with the right to acquire 27.4 million more at that price, Los Angeles-based American Apparel said today in a statement. Charney, the largest stockholder, bought 800,000 shares and can add 1.6 million. The deal would raise $41 million if the investors exercise all purchase rights.
American Apparel is also in discussions to amend its lending agreements with Bank of America Corp. and London-based Lion Capital LLP to remove the “going concern” or similar language from its 2010 year-end audit, the company said. The retailer said last month in a financial statement that the company is at risk of filing for protection from creditors without better liquidity or an operational improvement.
“We believe in the American Apparel brand and we believe in Dov Charney,” Serruya said in the statement. “We are convinced that with adequate resources, Dov and his experienced management team will lead American Apparel to new heights.”
American Apparel was unchanged at $1.58 at 4:15 p.m. New York time in NYSE Amex trading. The shares, which plunged 42 percent in the first quarter, have surged 31 percent since April 20, the day before four people familiar with the process said the board approved the deal. The stock traded at an all-time closing high of $15.80 in December 2007.
The retailer lost $86.3 million last year and repeatedly amended loan agreements with Lion Capital to avoid breaching debt covenants. Charney has blamed much of the losses and a decline in sales on the costs and productivity declines related to replacing 2,500 workers after immigration violations in 2009.
Charney’s investment marked the second time this year he’s tried to shore up the company’s finances after last month paying about $2 million for 1.8 million shares in a private placement, according to regulatory filings dated March 24.
Serruya co-founded CoolBrands International Inc., which owned the Chipwich and Eskimo Pie ice cream brands. The company sold off its operations and last year merged with Swisher International Inc., providing a public listing for the cleaning company run by Wayne Huizenga.