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American Apparel renegotiates debt covenants

American Apparel, the US fashion chain, has agreed a deal with its creditors and attracted a billionaire investor, ensuring that it would avoid breaching its debt covenants.

Billionaire Ron Burkle now holds a 6% stake in the company after acquiring 4.3 million shares for about $5.9m (£3.9m) since June.

American Apparel has amended its credit agreements with lender Lion Capital, to avert a potential violation of covenants. The agreement has, however, raised its annual interest payable to 17% from 15%.

American Apparel chief executive Dov Charney remains the largest shareholder with 53% of American Apparel shares.

In May, American Apparel said that it might breach debt covenants, which wiped nearly 14% off its share value. Like-for-like sales dropped 10% in the first quarter.

The debt waiver means that a cap on the amount of debt relative to EBITDA has been removed. Lion will also be entitled to board representation and got warrants to buy 16 million shares. In March 2009, Lion made a $80m (£53.7m) loan to American Apparel.

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