American Apparel is exploring new avenues for financing as negotiations with Colbeck Capital, a private equity firm backed by Ron Burkle, have stalled and a deal looks unlikely to come to fruition. The parties had been in discussions since August about a financing deal worth between $90 million and $100 million, but American Apparel Inc. executives balked at the high cost of the capital infusion, according to sources close to the talks.
Colbeck Capital management was seeking high entrance and exit fees for the loans, in addition to interest payments. “The pricing was on the high side, primarily structured around commitment and exit fees,” said a source.
American Apparel needs fresh financing to pay off a Bank of America credit facility that matures in July, on which the company owed $47.6 million as of Oct. 31.
New financing would also allow the cash-strapped retailer the ability to pay off some of the $114 million owed to London-based Lion Capital as of last month — a figure that is rapidly ballooning, due to an exorbitant 18 percent interest rate. The Bank of America loan, in contrast, carries a variable rate that is about 4.9 percent currently. But, the Lion debt is subordinate to the Bank of America loan, which must be paid off by July unless the bank agrees to extend terms of the loan.
Tom Casey, who exited American Apparel as acting president on Nov. 18, was said by sources to be in favor of the Colbeck Capital deal, as he had a close relationship with Burkle. Chief financial officer John Luttrell was said to be against the deal, as was Lion Capital head partner Lyndon Lea, who was wary of entangling American Apparel’s debt load with Burkle’s interests.
American Apparel is now in talks with bank and asset-based lenders that specialize in the retail sector, said sources. Capital from asset-based lenders tends to be more expensive than loans from traditional banks.
Interest payments have become an albatross on American Apparel’s bottom line, which has been mired in red ink. For the nine months ended Sept. 30, the company racked up $23.7 million in interest charges, with another $8 million to $9 million to come in the current fourth quarter.
For the nine months ended Sept. 30, the company reported a net loss of $28.2 million, compared to a net loss of $67 million in the same 2010 period.
To reduce those interest charges and find more attractive financing options, pumping up earnings before interest, taxes, depreciation and amortization (EBITDA) is crucial, as banks use that figure in part to calculate credit-worthiness and interest rates.
“With more EBITDA we can borrow at a lower average cost,” said Dov Charney, chairman and chief executive officer of American Apparel. The company expects to post about $15 million in EBITDA for fiscal year 2011, a turnaround from an EBITDA loss of $8 million last year.
“With our sales momentum, cotton prices coming down and improved efficiencies at the factory level, I think we can take that figure up much further next year,” said Charney, who said the company needs to make about $50 million in EBITDA just to break even on the bottom line.
American Apparel posted EBITDA of $56 million in 2009, $70 million in 2008 and $55 million in 2007.
The company has reported improved sales momentum this holiday season, with comp-store sales up 10 percent in November, which includes a 7 percent gain in retail stores and a 32 percent advance in e-commerce sales. For the fourth quarter through Nov. 30, comps were up 5 percent in stores and up 17 percent online.
Wholesale sales were flat in the same period through Nov. 30. Total sales in the period were up 7 percent.
Harrods plans to remove the famous statue of Princess Diana and Dodi Al Fayed from the bottom of the Egyptian escalators and hand it back to Mohamed Al-Fayed. “We are very proud to have played our role in celebrating the lives of Diana, Princess of Wales and Dodi Al Fayed at Harrods and to have welcomed people from around the world to visit the memorial for the past 20 years,” said Michael Ward, Harrods managing director. “With the announcement of the new official memorial statue to Diana, Princess of Wales at Kensington Palace, we feel that the time is right to return this memorial to Mr. Al Fayed and for the public to be invited to pay their respects at the palace.” More on the news, with reporting by @loreleimarfil, at WWD.com. #wwdnews
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The fashion world mourns for celebrated street style photographer, Nabile Quenum, who died at age 32 in Paris.
Quenum, creator of the fashion blog “J’ai Perdu Ma Veste,” was a fashion week fixture, and regularly shot for New York magazine’s The Cut, among other outlets, and brands such as Louis Vuitton, Moncler and Adidas. He was also actively involved in the #NoFreePhotos initiative, which kicked off in the fall. Read more about Quenum in @kbsmoke's story on WWD.com. #wwdnews
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