American Apparel, the US clothing retailer, is selling a fifth of its business to Lion Capital, the British private equity firm.

The deal will pump a much-needed $80 million (£57 million) into American Apparel's coffers.

The clothing company is understood to be close to defaulting on $16 million of debt owed to Michael Dell, the technology mogul, that is due to be repaid in seven days.

Lion Capital is likely to receive warrants for 16 million new shares under the terms of the deal, worth $2 each.

The deal will add clothing to Lion Capital's already bulging stable of consumer companies.

The group owns Orangina Schweppes, the soft drinks manufacturer, Kettle Foods, the crisps maker, and Wagamama, the chain of noodle stores. It formerly owned Jimmy Choo, the designer shoemaker.

American Apparel has suffered as consumer demand has waned across the globe.

The company said that sales fell 9 per cent last month, the first drop in its history.

It has 260 retail stores in 19 countries and employs about 10,000 people.

Shares of American Apparel have fallen from a high of $10.86 a share this year to $1.49 a share.

The company underwent a management shakeup in January when Adrian Kowalewski was named chief financial officer.

Mr Kowalewski, 31, took over from Ken Cieply, who resigned as chief financial officer after Dov Charney, the chief executive, controversially called him a “complete loser” in an interview with The Wall Street Journal.

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