WestPoint Creditors Grapple with Icahn
October 15, 2007,
A state judge in Delaware has clarified an order that will permit WestPoint International "to conduct business the way it has been and specifically may sell what the company considers its ordinary assets," according to court documents and filings with the Securities and Exchange Commission.
The Oct. 5 clarification, by chancellor William B. Chandler III, of the Chancery Court of New Castle County, came following a temporary order two days earlier in which he sharply limited WestPoint's right to sell off or dispose of assets in excess of $5 million, alter or destroy files, modify the company's corporate structure, sell or restructure its stock or engage in insider transactions or with affiliates of financier Carl Icahn. It required the company to provide 30 days notice of such transactions to the group of first-tier lenders, represented by Beal Bank, the plaintiffs in the case.
WestPoint was acquired by Icahn in July 2005 in a hotly contested bankruptcy auction that pitted him against WestPoint's other secured lenders. That fight continues today. The judge's initial ruling in protecting the company's assets was in favor of Beal Bank.
Chandler's recent amended order permitted WestPoint to "enter into such contracts and agreements as are appropriate to effect the retail stores transaction as described in the motion."
The redacted documents did not specifically state that the stores were being sold, although in the context of what was made public, it would be difficult to envision many other scenarios. Carl Icahn could not be reached for comment and executives at WestPoint would not respond for publication. Efforts to reach a representative of Beal Bank were unsuccessful.
However, the WestPoint pleading noted the company cannot wait 30 days before proceeding and that the stores transaction "will naturally change somewhat as the parties continue to negotiate. It is also possible the parties will not reach final agreement, although management currently believes that is unlikely.
"It is important to note that the retail stores transaction is with an independent third party that is not connected to any of the defendants, including the Icahn-related defendants."
WestPoint also argued that Icahn has no incentive to harm the company and that the parent firm (formerly American Real Estate Partners, since subsumed into Icahn Enterprises), "through subsidiaries, has invested approximately $420 million directly in the company," in addition to other amounts it invested in the securities of the old WestPoint Stevens.
Icahn's battle with other first-tier lenders dates back to the period well before WestPoint Stevens was liquidated to become the new WestPoint Home, a period in which he trumped the other secured interests by combining his first- and second-tier debt interests in WestPoint. At that time, other first-tier lenders brought in financier Wilbur Ross to make a competitive bid for the company.
Icahn brought the company out of bankruptcy with a promise of new investment and a restructured global model, something WestPoint has been working on since, as it continues to struggle for profitability and shelf space.
For the six months ended June 30, WestPoint recorded an operating loss of $92 million, vs. a loss of $82 million in the comparable six-month period last year.