Published On: Thu, Jul 17th, 2014

Hedge Fund Sees Good Things in American Apparel Future, Probably Without Charney

A partner in Standard General said new stores and a better website can help turn American Apparel around.

Dov Charney,    chairman and chief executive officer of American Apparel.

Standard General, the hedge fund that acquired American Apparel, now has a recovery plan for the fashion chain, most likely without its belligerent founder and former CEO, Dov Charney, Reuters reports.

The fund specializes in investing in companies that have run into debt trouble and face bankruptcy, but which Standard General evaluates as still having viability.

Reuters noted that Standard General has had its own share of failures, most recently with its investment in RadioShack, whose stock has fallen close to 69 percent this year.

Nevertheless, the fund has had a good track record of leveraging its positions in troubled companies into profitability.

Standard General is a 14-employee firm, controlling $1.1 billion. In 2013, it had returns of 32.5 percent net of all fees on its offshore fund, according to Reuters. The fund was up 8.6 percent in 2012 but down 6.2 percent in 2011.

Standard General targeted American Apparel last winter, fund partner David Glazek told Reuters, because it “has a strong underlying brand but was in turmoil. It has a balance sheet problem that we can help fix.”

Standard General’s investment in American Apparel recently has risen to 44 percent, when Charney gave the hedge fund his stake as collateral for a loan. If Charney repays this loan, the hedge fund can buy back close to 19 percent of the company stock at about 71 cents per share. The stock closed at $1.15 on Wednesday.

Standard General has promised $25 million to American Apparel, which the company is planning to use to repay a $9.9 million loan. The hedge fund will have three members on the American Apparel new board, one of whom will probably be a Standard General partner.

Glazek said he believes that simple changes can help turn American Apparel around. He wants to open new stores and to improve the company website.

“The American Apparel e-commerce platform is so antiquated that you don’t need much to really improve it, ” said Glazek.

We paid a visit to the American Apparel website, and, honestly, it felt like 1995 all over again. So, yes, change will be good for the company. And Dov Charney can dream up something new, possibly with a lot of women in it.

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