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American Apparel receives credit agreement waiver

February 1, 2011 |  2:50 pm

American Apparel Inc., the Los Angeles maker of trendy apparel, has received a waiver to its credit agreement with Lion Capital and other lenders to help it avoid defaulting on its loan.

Under the agreement, which is in effect until Feb. 11, the struggling company does not need to maintain minimum earnings before interest, taxes and depreciation for the fiscal year ending Jan. 31, according to a regulatory filing with the Securities and Exchange Commission on Tuesday.

American Apparel also said it was hoping to obtain a permanent waiver and was negotiating "possible amendments" to its Lion credit agreement.

However, the company said it could "provide no assurance that it will be able to secure such amendments or extension, nor, if secured, the terms thereof." That could lead to a default under its Bank of America credit agreement, which could cause the manufacturer to owe Bank of America all of its debt immediately.

"The acceleration of any or all amounts due under the Lion Credit Agreement or the BofA Credit Agreement or the loss of the ability to borrow under the BofA Credit Agreement would have a material adverse impact on the Company’s operations which would result in the need for the Company to modify its current business plan and/or curtail its operations and could affect the Company’s ability to continue operations as a going concern," American Apparel said in the filing.

Last week, Los Angeles billionaire Ron Burkle cut his stake in American Apparel less than a year after buying up 6% of the company's stock.

According to a regulatory filing, Burkle sold about 1 million shares in recent weeks, reducing his stake in the company to 3.4 million shares, or about 4.3% of common stock, as of Jan. 20. Burkle, who made his fortune in the supermarket business, sold his shares at prices ranging from $1.40 to $1.65.

On Tuesday, shares of American Apparel rose 6 cents, or 5.8%, to $1.09.

-- Andrea Chang