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American Apparel announces USD80m investment by Lion Capital

Los Angeles-based American Apparel, a vertically integrated manufacturer, distributor and retailer of branded fashion basic apparel, has entered into a private financing agreement with

Los Angeles-based American Apparel, a vertically integrated manufacturer, distributor and retailer of branded fashion basic apparel, has entered into a private financing agreement with Lion Capital for USD80m in secured second-lien notes maturing on 13 December 2013 with detachable warrants.

Neil Richardson and Jacob Capps of Lion Capital will join the American Apparel board of directors.

"We are excited that Lion Capital, a leading private equity firm in the consumer sector, has decided to make a substantial investment in American Apparel," says Dov Charney, founder and chief executive of American Apparel. ‘In light of unprecedented market conditions, we believe Lion Capital’s investment serves as a strong endorsement of our company and the tremendous potential of our brand.

"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. Lion Capital’s singular focus on the consumer sector and their extensive experience with growing consumer brands makes them an ideal partner as American Apparel continues to develop into a leading, global apparel brand."

Lion Capital partner Neil Richardson says: "We are extremely pleased to have the opportunity to partner with Dov and the management team at American Apparel. The strong growth of the brand over the last few years is a testament to his vision and business acumen, and we believe the company will continue that exciting growth into the future, both in the US and around the world."

The notes will have a coupon of 15 per cent, payable in cash or payable in kind at the company’s option. The notes are callable at any time at par plus accrued interest. The notes provide for a security interest in all assets of the company and its subsidiaries, subject to prior liens with respect to such assets under the company’s existing revolving credit facility.

Lion Capital also received detachable warrants for an aggregate amount of 16 million shares of the company’s common stock, exercisable at a strike price set at a five per cent premium to the 30-trading day, trailing stock price average as of market close on 12 March 2009, which equates to USD2.00 per share. The warrants expire in March 2016. Assuming conversion of the warrants into common stock, the warrants would equate to a pro forma ownership in American Apparel of approximately 18 per cent.

American Apparel will use the proceeds of the investment to retire in full the outstanding amounts on the company’s existing second lien credit facility with SOF Investments – Private IV, an affiliate of MSD Capital.

Consequently, American Apparel will not issue any additional warrants to SOF Investments as provided in the December 2008 amendment to the SOF Investments credit agreement. American Apparel will use the remaining proceeds principally to reduce the outstanding balance under the company’s revolving credit facility, repay a portion of a shareholder note, pay fees and expenses related to the transaction, and for working capital purposes.

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