Lion spends $80m for a piece of American Apparel

The London-based firm is set to take up to an 18% stake in the clothing retailer by buying a portion of the company’s second lien debt. The debt is held by a fund associated with computer billionaire Michael Dell.

Lion Capital, a retail-focused private equity firm, has purchased an $80 million stake in US retailer American Apparel that will help the company stave off a potential default on debt.

The company, which was taken public in a SPAC deal in 2007 valued at about $244 million, had received amendments to second lien debt and a revolving credit facility lent by SOF Investments, a private debt fund owned by MSD Capital. MSD was set up in 1998 to manage the wealth of Dell computer founder Michael Dell.

“This investment provides us with a long-term solution for our capital structure and an enhanced ability to grow our brand both domestically and internationally over the coming years,” Dov Charney, founder and chief executive officer of American Apparel, said in a statement.

Under the deal’s terms, Lion will buy $80 million-worth of second lien notes that mature on 31 December 2013. The private equity firm also will receive warrants for 16 million shares of American Apparel’s common stock for about $2 a share. The warrants would give Lion an 18 percent stake of the company.

American Apparel will use proceeds of the transaction to pay off some of its outstanding debt and for working capital.

A blank cheque company called Endeavor Acquisition bought American Apparel in 2007 in a deal that involved $110 million of debt. Endeavor was founded by Jonathan Ledecky, who founded US Office Products, and Eric Watson, who founded retail company Blue Star Group, which was sold to US Office Products.

Lion is a London-headquartered firm that has invested about €4.5 billion of equity in deals totaling more than €17 billion in value. It is currently investing its Lion Capital Fund II, which closed on €2 billion in 2007, and has previously backed many well-known retail brands including Jimmy Choo, Kettle Foods, HEMA and Weetabix.