WPS Ready to Flex New Muscles

Company Will Emerge From Chapter 11 With $150 Million and No Debt

Brent Felgner, Staff Staff, July 11, 2005

New York — With the fresh promise of a new owner, about $150 million in cash, the prospect of raising more, and the elimination of its debt, WestPoint Stevens will emerge from two years in the intensive care of Chapter 11 probably in better condition than anyone could have hoped and much better than many odds-makers gave it.

But it won’t have much time to enjoy its new status. In an industry not credited for the ability to turn on a dime, the 200-year old mill will need to move fast to shed its remaining brownfields assets and change its infrastructure to meet an already present global challenge from competitors and customers.

“This happened in the nick of time to be able to turn this company around,” Carl Icahn said in an interview shortly after U.S. District Judge Robert Drain declared his $703.5 million bid the winning offer for the mill. “This company is going to require a lot of capital. Our come-out is going to be about $150 million (net of the $187 million he’s paying in cash) with no debt, and that will make for a very strong balance sheet. But it will probably require more capital.”

The buyout will result in more than $516 million being paid to debt holders in cash and stock.

Icahn already plans to issue public stock in the new company absorbing the WestPoint assets. Much of it will be used to satisfy first- and second-tier secured debt in a debt to equity swap. But whether the additional cash will come out of his pocket, from an additional private placement or from an additional equity offering, remains to be seen.

What is clear is that even as the old mill transforms into something much newer and lighter, Icahn has joined a growing corps of buyout specialists who choose to get involved in the management of their prizes, beyond the obligatory real estate, plant and equipment plays. More than just another challenge to their management skills, the trend among these investors — such as the Kmart/Sears interests of Eddie Lampert — has everything to do with improving the companies’ operational performance and cash flow to prop up their investors’ returns.

Icahn may not become involved in the moment-to-moment management of the new WestPoint, but it is fair speculation he will take a strong hand in virtually everything it does.

That WestPoint is being folded into Aretex — an acronym combining Icahn’s American Real Estate Holdings and Textile Co. — begs the question about where he sees at least some of the mill’s value.

But even as the rebuilding begins in earnest, some former contestants for the mill are continuing to argue over the minute terms of the sale and the terms of a proposed reorganization, all while apparently trying to preserve whatever rights they might have to appeal the outcome.

The Steering Committee of first lien lenders has filed a lengthy objection to the proposed sale order — not seeking necessarily to block it from taking effect, but merely to improve its language and, thus, its terms.

But the committee — composed of hedge funds and distressed debt players, including C.P. Capital Partners, Satellite Income Fund, Contrarian Capital Management and Wayland Distressed Opportunities Fund — is going it alone this time.

Wilbur Ross, who provided a high-profile challenge to Icahn’s status as the single largest secured creditor of the mill, has quickly moved on to other interests, stating flatly he will not challenge the bankruptcy court’s decision further.

“I wish him well,” Ross said of Icahn’s success in court following a tedious yet highly contentious four-day hearing to select the auction winner. Within days of the decision, Ross flew to Vietnam and China in search of new joint ventures for his International Textiles Group — the parent of Burlington and Cone Mills.

“There are plenty of other opportunities in textiles,” Ross said, raising the prospect that he might still be shopping for other struggling U.S. mills. But Ross declined to say which ones, if any, he might have an eye on or if he’s been in any specific discussions. There’s been limited speculation that Ross might still cut a deal directly with Icahn for an interest in WestPoint, although there’s been no objective evidence to suggest that.

In the meantime, the prospect of a successful appeal to the auction, should there be one, seems limited at best. Drain rejected virtually all of the Ross/Steering Committee objections to the sale and declared the auction fair and at arm’s length. Moreover, he ruled that Icahn, Ross and the Steering Committee were all “highly sophisticated bidders,” a finding that blunted many of the fairness issues.

WestPoint had more that $2 billion in outstanding debt. While first-lien lenders will be paid in full with funds flowing over to second-tier creditors, unsecured creditors finished out of the money and will see no payout.

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