Wrangling Over WestPoint

Brent Felgner, October 29, 2007

New York —Affiliates of Carl Icahn and the Steering Committee of First Tier Lenders of the old WestPoint Stevens have until early December to appeal a bankruptcy court order redistributing the sale proceeds from the bankrupt mill's 2005 auction.

In the meantime, a state court judge in Delaware has green-lighted the ability of the successor company -- WestPoint International -- to sell off assets, possibly including its stores, without prior approval by court or creditors.

The Chancery Court in New Castle County, Del. raised a limit from $5 million to $20 million for outright sale of WPI assets. The judge also raised the limit to $30 million on asset transfers. The modified order comes amid indications that the company was in negotiations to sell off its 30 retail stores (HTT, Oct. 15, 2007, p. 2). WestPoint executives would not comment for publication.

Information on the decisions was contained in federal and state court records, as well as filings with the Securities and Exchange Commission. The actions are the latest in a long series of disputes involving WestPoint and its owner, corporate activist Carl Icahn, and other first-tier secured creditors of WPI, which are represented by Beal Bank. Icahn acquired WestPoint in 2005 in a hotly contested bankruptcy auction.

Icahn prevailed in the Section 363 bankruptcy auction, combining his first- and second-tier debt and adding $187 million in cash to grab the assets.

Among the new findings was a determination about how proceeds from the WestPoint sale should be divided among secured lenders, including Icahn and Contrarian Funds, one of the largest secured creditors of WestPoint.

A federal district judge earlier remanded the case back to the bankruptcy judge, who this month determined that approximately two-thirds of the shares would be distributed among the first-lien lenders, including Icahn, with Icahn's affiliates receiving one-third of the stock subscription rights.

In the current SEC filing, WestPoint Home corporate parent Icahn Enterprises stated that it holds about 40% of the outstanding first-lien debt and about 51% of the second-tier debt.

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