NEW YORK (The Deal) -- American Apparel (APP) announced late Wednesday that it was pulling back from the brink of defaulting on its debt, with $25 million in immediate financial support from New York hedge fund Standard General LP.
The Los Angeles-based retailer, known for its "Made in the USA" sweatshop-free clothing, has reached a standstill and support agreement with Standard General and the company's founder Dov Charney, who combined hold a nearly 44% stake in the company.
Charney was also removed as chairman and replaced by co-chairmen Allan Mayer and David Danziger. Mayer and Danziger will continue to lead the company's board.
"This truly marks the beginning of an important new chapter in the American Apparel story," said Mayer in a statement. "With the support of Standard General, we are confident the company will finally be able to realize its true potential."
In a phone interview Thursday, Mayer said that the terms of the $25 million investment are still being worked out, but that it could take the form of debt or preferred stock. He said they hoped to have the details finalized in the next two days and that the money would give the company a "nice cushion."
Under the agreement, the company's board of directors will be reconstructed, and five of the current seven broad members will be replaced. This includes Charney, who will step down voluntarily.
Standard General will have the right to select three new directors on its own, and the remaining two directors jointly with American Apparel's current board of directors. Four of the board members will be independent, the company said.