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Leonard Green and Ron Burkle are both circling American Apparel as it seeks to refinance its debt load.
This story first appeared in the August 31, 2011 issue of WWD. Subscribe Today.
Private equity firm Leonard Green & Partners recently offered a $100 million loan secured by American Apparel’s brand name and intellectual property, which could have been used to pay off $83.8 million the struggling retailer owes to London-based Lion Capital under a term loan that carries an exorbitant 18 percent interest rate, said sources.
However, American Apparel founder and chief executive officer Dov Charney, who currently holds a 47.1 percent stake in the company, is reluctant to put the company’s brand name and IP at risk, said sources. Leonard Green & Partners has been active in the fashion space and its current retail investments include J. Crew, Neiman Marcus Group, Sports Authority, Tourneau and David’s Bridal.
Burkle — whose The Yucaipa Cos. investment vehicle holds interests in Sean John, Scoop, Garrard, Stephen Webster and Zac Posen — made a separate offer to refinance American Apparel’s debt load last week, but a deal has not materialized. Burkle owned 3.4 million shares of American Apparel as of a Jan. 20 Securities and Exchange Commission filing.
Charney declined to comment Tuesday when reached by phone in Montreal, where he was sitting shiva for his grandmother, who recently died.
The two investment groups for now are on the sidelines, although their offers remain on the table. American Apparel could receive another cash infusion in the coming months as the Canadian investment group that holds a 23.3 percent stake in the company may exercise its remaining warrants under the April purchase agreement that bailed out the cash-strapped retailer.
On Tuesday, the L.A.-based retailer made a regulatory filing with the Securities and Exchange Commission that helps clear the way for the exercise of up to 19 million warrants at 90 cents per share, which would bring the company up to $17.1 million.
The warrants held by the Canadian investment group, which is headed up by Michael Serruya and includes a consortium of investment funds, are currently “in the money” as American Apparel shares closed Tuesday at 97 cents, up 4 cents on the NYSE Amex. The warrants expire on Oct. 27.
Earlier this week, Michael Serruya flew to L.A. via private jet to visit American Apparel’s 800,000 square foot production facility. American Apparel operates 254 retail stores in 20 countries.
In the filing, American Apparel registered 43.2 million shares for a potential secondary offering, which encompasses the 24.2 million shares the Canadian investment group now holds, in addition to the 19 million shares they hold the right to purchase. The registration means the investment group can exercise their warrants to acquire non-restricted shares rather than restricted shares, which they would not be able to sell for six months.
“The registration is a vehicle meant to encourage us to exercise those warrants, which will bring more funds into American Apparel. It is not a signal that we intend to cash out our shares, which would be difficult to do anyway,” explained one member of the investment group who holds over 1.5 million shares of the company.
Last month, the investment group exercised $8.3 million in warrants in two separate transactions, bringing the total amount it has pumped into American Apparel to $22.5 million.
The investment group includes Dynamic Power Hedge Fund, Front Street Investment Management Inc., Anson Investments Master Fund LP, EdgeHill Multi Strategy Master Fund Ltd., Sentry Diversified Total Return Fund, PowerOne Capital Markets Ltd. and Delavaco Capital Inc. The Serruya stake is spread out over four family members, who currently hold a total of 6.2 million shares.