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Standard General Increases Control of AA

The hedge fund is said to be loaning American Apparel Inc. $25 million in financing.

Standard General, American Apparel’s hedge fund white knight, is said to be close to a deal to lend the company $25 million.

The loan would help shore up the company’s finances, as well as pay the $10 million owed to lender Lion Capital.

On Monday, American Apparel in a regulatory filing with the Securities and Exchange Commission said it received a notice of default from Lion in connection with a credit loan agreement dated May 22, 2013. That agreement allows for the acceleration of the maturity of the loan and other outstanding obligations under the credit agreement. According to American Apparel, Lion Capital said the reason for the default  was that Dov Charney has ceased to be chief executive officer of the company.

American Apparel in the filing disputed Lion’s claim, and said it would contest the validity of the acceleration.

Any agreement that may be reached between Standard General and American Apparel may also depend on whether consent is required by the other lenders of American Apparel, and where Standard General would stand in the hierarchy of the totem pole in terms of who gets repaid first.

The retailer already is in talks with those lenders of its revolving credit agreement for approval to pay all amounts due to Lion. The terms of the revolving credit agreement does not currently permit the repayment of the loans to Lion.

Standard General last week teamed with ousted founder Charney. Charney was ousted as chairman, and was removed as ceo pending an internal investigation of certain matters. Charney has taken the company to arbitration for what he said is a wrongful dismissal.

The teaming of the New York-based hedge fund and Charney has led to Standard General controlling 44 percent of American Apparel’s stock. That in turn has led to a board composition that is expected to contemplate seven members, with co-chairman Allan Mayer and David Danziger staying on. The balance would consist of three members appointed by the hedge fund and the other two to be mutually agreed upon between Standard General and American Apparel.

The Wall Street Journal first reported about the possibility that the hedge fund will loan American Apparel $25 million.