American Apparel Inc. has found a new creditor, swapping out an expiring bank credit facility for a more expensive loan and credit facility with a syndicate led by a George Soros-backed fund.
The financially strapped specialty retailer was thrown an $80 million lifeline by Boston-based Crystal Financial LLC and Salus Capital Partners LLC, comprised of a $30 million term loan and a $50 million revolving credit facility. Soros’ Quantum Strategic Partners Ltd. is the lead investor in Crystal Financial.
The financing replaces an existing $75 million senior credit facility — on which about $50 million was owed — with Bank of America that was set to expire in July. The new financing carries significantly higher interest rates, which will add a further drag to American Apparel’s bottom line. The company has posted seven consecutive quarters of losses.
The new credit facility expires in March 2015 and carries an interest rate of the London Interbank Offered Rate (currently about half a percent) plus 9 percent. The previous Bank of America facility carried an interest rate of LIBOR plus 4.5 percent.
“I don’t think its material in our long-term prospects,” said American Apparel chief executive officer Dov Charney of the higher interest rates. “If we hit our numbers then the interest rate won’t matter.”
American Apparel is expected to issue sales and earnings guidance for 2012 today.
The company has trumpeted higher same-store sales since the fall, but those figures are stacking up against anemic numbers from a year ago. American Apparel’s comps were up 11 percent in February, 11 percent in January, 11 percent in December and 7 percent in November. The year ago-comparisons were during a fourth quarter in 2010 when comps slumped 11.5 percent and a first quarter in 2011 when comps slipped 8 percent.
As of Feb. 29, the company operated 250 retail stores in 20 countries, down from a high of over 280 stores in 2010.
In a related move, American Apparel has also extended the maturity date of its credit facility with Lion Capital, under which it owes about $116 million at an exorbitant 18 percent interest rate. The maturity was extended by two years to December 31, 2015. As part of the deal, American Apparel must begin paying Lion Capital at least 5 percent of each interest payment in cash on the outstanding principal, beginning in September.
“We had several objectives related to the refinancing of our capital structure. We wanted to replace our existing senior credit facility with a long-term facility at commercially appropriate rates with additional capacity,” said John Luttrell, chief financial officer of American Apparel. “We also hoped to extend the Lion debt in a manner that would not dilute our equity shareholders and give us the added flexibility to ultimately take out this credit agreement as operating results continue to improve.”
American Apparel stock closed up 11 percent to $1.02 on Tuesday.