Embattled American Apparel Receives Chance to Raise Up to $10M

NEW YORK (The Deal) -- American Apparel  (APP), the troubled international clothing retailer that is under investigation by the Securities and Exchange Commission, may raise up to $10 million in fresh capital through an at-the-market offering facility.

The financing was announced Monday, May 11, after American Apparel reported a first-quarter loss of $26.4 million, almost five times its loss a year earlier.

If the Los Angeles-based company sells all of the stock it is able to under the ATM facility, it would represent 8.7% of American Apparel's market capitalization.

In a statement, the company said it plans to use proceeds from stock sales under the facility for working capital and general corporate purposes.  American Apparel said it had enough liquidity to see it through the next year. The company reported that it had $20.9 million in cash on its books at the end of the first quarter.

American Apparel shares fell 3 cents to 62 cents the day after the facility was announced.

Cowen & Co., led by Robert Sine and William Follis, is acting as placement agent for facility, which allows American Apparel to sell stock at the most advantageous times according to share price. Cowen will receive 3% of the gross proceeds from the offering. Jones Day is providing legal advice the company on the offering, while LeClair Ryan PC will provide legal counsel for Cowen.

American Apparel has suffered losses over the last three years and has attracted controversy with its advertising campaigns, which have featured scantily clad models including porn star Faye Reagan. Some of the ads were banned in the United Kingdom.

Also, company founder Dov Charney was named in a string of sexual harassment lawsuits dating back to 2005. Charney was fired as CEO last June over allegations of sexual harassment and misuse of company funds. He remained a consultant to American Apparel until the company severed all ties with him in December and named Paula Schneider as CEO.

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