American Apparel is suddenly facing a cash crunch.
A key lender to the embattled clothing company on Thursday demanded repayment of a $10 million loan, threatening a liquidity crisis for the retailer on the heels of its ouster of CEO Dov Charney, The Post has learned.
Lion Capital, a UK-based investment firm that has been friendly to Charney, denied a waiver on the default triggered by the executive’s dismissal, forcing American Apparel to raise funds to pay it off — either by issuing new debt or additional equity in the company, sources said.
American Apparel’s debt structure has cross-default provisions that also will trigger a default on the company’s $30 million credit line with Capital One, potentially creating a cascading effect that could force a bankruptcy if it can’t line up funds.
“They’re either going to have to add debt at punishing rates, or raise more equity and further dilute shareholders or go bankrupt,” according to a source briefed on the situation.
The Los Angeles sportswear manufacturer and retailer could also be a takeover target — its shares have soared nearly 41 percent in the last two trading days, closing Thursday at 74.4 cents a share.
American Apparel couldn’t immediately be reached for comment Thursday. Lion officials declined to comment.
Lion has given American Apparel until July 4 to repay the loan, sources said.
Other lenders, including Cerberus Capital Management, have expressed interest in refinancing the debt, several sources noted.
This week, American Apparel confirmed it has hired investment bank Peter J. Solomon to raise money in case Lion decided to call in its loan.
Co-Chairman Allan Mayer, who led last week’s coup against Charney following the company’s annual meeting, said late Thursday that the company is still in talks with Lion about the status of the loan, declining to comment further.
Insiders said Lion CEO Lyndon Lea became frustrated in recent days after American Apparel’s board appeared to stonewall him in response to questions about the internal investigation that spurred Charney’s dismissal.
In a June 18 termination letter to Charney, the board cited “willful misconduct,” including allegations that he allowed an employee to create a blog with naked pictures of Irene Morales, a former employee who had filed a sex harassment suit accusing Charney of making her his “sex slave.”
In addition to denying American Apparel a waiver on its debt, a source said Lion has been advised by its lawyers to temporarily forgo its right to take two board seats because of provisions triggered by Charney’s ouster.
The concern, according to the source, is legal liability for board members engaged in an arbitration dispute with Charney, who is alleging he is entitled to as much as $25 million in severance.