Business

American Apparel gets up to $43M in rescue financing, avoiding bankruptcy

American Apparel has secured rescue financing that will inject as much as $43 million into the cash-strapped clothing chain in the coming months, helping it avert the threat of Chapter 11 bankruptcy, sources told The Post.

After days of tortured deliberations, the retailer’s board has approved a financing package from a group of Canadian investors that will immediately pump $15 million into American Apparel’s operations in exchange for common stock priced at 90 cents a share, according to sources close to the situation.

That’s a discount of more than 27 percent to the company’s closing share price yesterday of $1.24.

In addition, the Canadian investors will be given stock warrants, also priced at 90 cents a share, that could bring their total cash infusion to as much as $43 million over the next six months — giving them nearly one- third of the company’s total outstanding shares.

The issuance of new stock and warrants will dilute current shareholders, but “the return on equity looks very attractive to everybody longer term,” said Roy Sebag, a managing partner of Essentia Equity, one of several lenders in the rescue package, which was led by Canadian investor Michael Serruya.

CEO Dov Charney — who has been scrambling to maintain control of the company even as he fights off a string of sex-harassment lawsuits amid the threat of bankruptcy — is ponying up $700,000 of his own money as part of the deal, sources said.

In addition, Charney will be given the opportunity to counteract dilution from the deal with stock options that will vest if American Apparel’s stock continues an upward climb during the next four years. Specifically, Charney’s options will vest if the company’s stock hits $3.25 next year, $4.25 in 2013 and $5.25 in 2014.

While the Canadian investors’ warrants are exercisable during the next 180 days, their steep discount to the company’s current stock price will likely drive them to cash in sooner rather than later, pumping additional liquidity into American Apparel in the coming weeks, according to people close to the situation.

The agreement follows several days of heated discussion on American Apparel’s board, as some directors expressed doubts whether the rescue financing was just a band-aid that could leave the company’s finances vulnerable to deteriorating further before going bankrupt.

To placate lender Bank of America, which provides American Apparel’s credit line, American Apparel will carry an additional $5 million in available cash on its balance sheet, on top of the current minimum requirement of $7.5 million.