Judge Will Make WPS Call

Brent Felgner, June 20, 2005

New York —Tuesday's auction for WestPoint Stevens will likely spill over to this Friday's bankruptcy court hearing to decide myriad legal controversies before finally declaring a winner. Maybe.

Among the participants, mostly attorneys representing the principals, it's a given that the real action will take place Friday in the courtroom of U.S. District Judge Robert Drain on the sixth floor of the Old Customs House. That is when the Purchaser Selection Hearing is to take place, before which lawyers will make their arguments.

“That will be the real show,” offered one of the lawyers in an aside, although similar sentiments were expressed by others.

Going into last weekend, a number of attorneys and other participants said they were in a quiet time leading up to the auction, although it was equally clear there was a heightened amount of activity taking place out of view.

The contest has almost assuredly come down to just the two primary bidders: The Steering Committee of First Lien lenders, which last February enlisted Wilbur Ross to its cause; and Aretex, an affiliate of Carl Icahn, WestPoint's largest single debt holder with roughly $278 million of secured debt spread over the first and second tiers.

No other bidders have publicly — or even privately, for that matter — been identified. In any other bankruptcy auction, the presence of just two bidders might keep the bidding process clear and simple. But WestPoint's efforts to emerge from its two-year-old bankruptcy have been anything but clear and never approached simple.

Over the last 10 months, every one of its efforts to come up with a voluntary reorganization plan has fallen victim to an acrimonious debate between Icahn and the Steering Committee, and ultimately blocked from confirmation. (The latest plan and disclosure statement was filed with the court June 10, with a confirmation hearing scheduled for July 12.)

The central issue in the dispute — which will permeate the auction and subsequent hearing — is whether Icahn's position as the largest debt holder can be trumped by individually smaller holders of, on the whole, higher priority secured debt.

The arguments, some of which are fairly opaque, turn on the intercreditor agreements, and the Steering Committee's authority to credit bid Icahn's debt against his interests.

By some estimates, the arguments, resulting decisions on law and the declaration of a winner are unlikely to occur within a single court hearing. Indeed, the legal proceedings might well portend an effort at an appeal, given the hotly disputed issues and the histories of the participants. But others believe any attempt at an appeal would simply be quashed by the court.

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