By Jeffrey Dastin
(Reuters) - American Apparel Inc has contested a claim made by lender Lion Capital that it has defaulted on a $9.9 million loan, according to a company filing on Tuesday.
The retailer, which ousted founder and Chief Executive Officer Dov Charney more than two weeks ago, said Lion Capital cannot demand repayment until Charney officially steps down after a month-long suspension on July 19, the filing said.
Lion Capital, a British investment firm, said it had the right to recall the loan when American Apparel's management changed.
Lion Capital requested repayment after American Apparel said on June 18 it planned to terminate Charney for allegedly misusing company funds and helping spread nude photos of an ex-employee on the Internet.
American Apparel also said in the filing it had the right to seek damages from Lion Capital "for asserting an invalid acceleration" of the date the loan was due. The $9.9 million loan was originally set to mature in 2018.
American Apparel declined to comment further. A spokesperson for Lion Capital was not immediately available for comment.
The retailer said the terms of its credit line barred it from using the funds to pay back Lion Capital, but it was seeking an exception, according to the filing. If its request for the funds was rejected, however, there could be "a material adverse effect" on the company and its business, it said.
American Apparel is in talks with other sources that may help the retailer repay the loan, it added.
Standard General, a hedge fund that acquired a 43 percent stake in American Apparel from Charney, could help the parties reach a deal. The retailer has also hired investment bank Peter J. Solomon to help it provide access to capital.
If American Apparel fails to repay Lion, "cross-default provisions" in an agreement with another lender, Capital One, could be triggered, it had said in a previous filing.
American Apparel stock dropped 5.9 percent to 83 cents on Tuesday.
(Reporting by Jeffrey Dastin in New York and Siddharth Cavale in Bangalore; Editing by Saumyadeb Chakrabarty and Jeffrey Benkoe)
