Yesterday’s news that investment firm Standard General have agreed terms to bolster American Apparel’s (AMEX: APP) finances and keep manufacturing of it’s clothing in the United States is certainly a step in the right direction but the company’s problems are still massive.
The deal includes $25 million from Standard and General to strengthen American Apparel’s financial position – a cushion if you will – against a $10 million loan that was demanded in full on Monday 7 July by Lion Capital LLP who stipulated in their loan agreement that a default would occur if Charney was no longer chairman.
The loan had an interest rate of 20%.
Dov Charney the company’s co-founder who was removed as Chief Executive last month joined with Standard and General to buy 27 million shares of American Apparel stock to bring his stake to 43%. Charney’s votes need prior approval from Standard General leaving ultimate control to the investment firm.
Charney is also barred from a seat on the board and had few options but to accept this deal since he is currently the subject of a board investigation into his personal and professional conduct in the wake of accusations of sexual harassment and creating an unsafe work environment rife with innuendo and sexual misconduct.
Let’s take a look at the numbers:
Figures from Morningstar.com
They are some pretty ugly numbers but here’s a REALLY ugly number:
Total stockholders equity: -$77 million.
Yes American Apparel is in negative equity and has been for the last two years.
In March American Apparel paid itself $30 million by issuing new shares onto the market in order to cover an interest payment on it’s bonds.
This is a very beaten up stock due in large part to it’s co-founder and former chairman.
I missed the March lows at 50c/share, do you think there is still upside for this small cap retailer?