Beleaguered Los Angeles clothing maker American Apparel Inc. said Friday that it had amended its debt agreement with Lion Capital, helping it avoid violating the terms of its loan.
The London-based private equity firm is also working with American Apparel to realign its capital structure, including hiring several new senior executives.
"We wholeheartedly support the company's 'Made in USA' philosophy under which 7,000 industrial workers in downtown Los Angeles are paid a fair wage," Lyndon Lea, Lion Capital founder and partner, said in a statement.
"We are particularly impressed by [Chief Executive Dov Charney's] passion and energy, and have complete confidence in the American Apparel brand and its business model as an integrated manufacturer and retailer."
It's the fourth amendment to American Apparel's loan agreement in the last year as the company has struggled to stay afloat. The most recent amendment eliminated for this year a requirement for the company to meet a minimum earnings target. It also asks for a minimum earnings standard to be tested monthly in 2011.
The announcement was a bit of good news for American Apparel, which saw shares rise 16.3% to $1.43 on Friday.
Known for its colorful basics and sexy advertising, American Apparel appeared on the brink of bankruptcy this summer and even warned that in the coming year there was "substantial doubt that the company will be able to continue as a going concern."
In recent months the company has been beset by sales declines, losses, problems with its debt, delayed quarterly filings and an investigation by the U.S. attorney's office in New York related to the company's abrupt change in accounting firms.
In a statement Friday, Charney said he was "touched that Lion Capital is sensitive to the unique challenges that the company has faced in the past year."
In addition, American Apparel is still working with FTI Consulting Inc., which is helping the apparel company make its production and operations more efficient, said Peter Schey, a lawyer for American Apparel.
"FTI has not been hired to restructure American Apparel — they've been retained, along with many other consultants, to provide suggestions to improve operations," he said. "They're literally one of several companies whose ideas are being considered."