American Apparel was locked in negotiations Tuesday evening to finalize a deal to hand control of the board to a New York hedge fund in order to avert a liquidity crisis, sources told The Post.
The retailer on Monday inked a preliminary agreement that will give control to Standard General, a New York investment firm that made a June 25 pact with ousted CEO Dov Charney to amass a controlling stake, The Post first reported.
Insiders said the parties were still working to finalize and announce the deal as soon as Tuesday evening, though it wasn’t immediately clear whether they would meet that goal.
Despite Charney’s tie-up with Standard General, the agreement isn’t expected to resolve what role Charney, who founded the company 25 years ago, will play going forward.
Instead, the board will await the outcome of a probe into alleged misconduct which prompted Charney’s surprise ouster June 18, sources said.
Under the preliminary agreement, insiders said American Apparel will head off a cash crunch sparked by a Monday demand for immediate repayment on a $10 million loan from Lion Capital.
Standard General, which has assumed voting control over a 44 percent stake it has amassed in conjunction with Charney, will pay off the loan as part of the preliminary agreement, sources said.
In turn, Standard General is expected to replace Lion’s loan, which carries a 20 percent interest rate, with a new loan at a lower rate, according to a source.
In all, Standard General is poised to inject between $20 million and $25 million into the company if necessary, insiders said.
Earlier Tuesday, American Apparel confirmed in a filing that it had received Lion Capital’s demand, which cited a so-called “key man” provision in the loan agreement that was triggered by Charney’s ouster.