After weeks of intense wrangling, one of American Apparel’s longtime lenders, Lion Capital, has demanded immediate repayment of a $10 million loan it made to the troubled retailer, after negotiations over new terms failed, the New York Times reported today. Although a potential new benefactor, the New York-based investment fund Standard General, has said that it was considering making the repayment on behalf of the company, it was unclear yesterday whether it would take that step or whether American Apparel would pay back the loan some other way. The move by Lion Capital is only the latest turn in a saga that has roiled American Apparel since the board ousted the company’s founder, Dov Charney, last month over concerns about his personal and professional conduct. The loan from Lion Capital, a British private equity firm that once owned Jimmy Choo, was always a precarious arrangement for the American Apparel. It came with a credit card-style 20 percent interest rate, as well as a provision that said if Charney were no longer chief executive, the loan could be called in. Crucially, the loan is also tied to another line of credit. If American Apparel defaults on its loan from Lion, it could cause a default on a $50 million loan from Capital One, should the bank follow Lion’s lead and demand repayment.
