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WestPoint's fall a series of miscalculations

Choked by more than $2 billion in debt, and paying a high price for years of financial miscalculations, WestPoint Stevens Inc. last week made a long anticipated — many say long overdue — bankruptcy filing, a move that should allow the textiles giant to wipe the slate clean of a debilitating debt load and rebuild its core businesses.

It's the second bankruptcy for the company in less a dozen years, and brings to an abrupt end the stewardship of Holcombe T. Green Jr., the Atlanta financier who bailed the company out and restored it to health — at least for half a dozen years — after a calamitous, failed hostile takeover by raider William Farley brought the company to its knees, and into Chapter 11, in the early 90s.

As part of a deal cut with unforgiving creditors, who had lost confidence as well as patience, Green was forced to resign as chairman and ceo

Ironically, both Green and WestPoint were ultimately brought down, at least in part, by the consequences of his efforts to save and rebuild the company after the failed Farley takeover of the 90s — the $1.35 billion Green and investors borrowed to buy the company, and then the hundreds of millions of dollars the company spent during the 90s to add capacity, most notably in terry, just before a wave of low-cost foreign imports rendered much of that manufacturing capacity redundant, if not obsolete.

And in an equally consequential miscalculation — after building up a daunting debt load buying, then rebuilding the major mill after its first bankruptcy — Green made another big bet and further mortgaged the company's future, when WestPoint aggressively bought back its own stock at a cost of millions more, siphoning off cash that could have been used to pay down some of that debt.

The ambitious stock buyback had two purposes — to lift the company's stock price higher by reducing the number of shares outstanding, enhancing earnings per share, the number Wall Street watches — hoping to make Green's big stake even more valuable. And it was a big gamble that the company's stock would keep on rising, enabling WestPoint at some point to sell the shares for more than it had paid for them.

At one point Green used his WestPoint stock, once valued at close to $40 a share, to collateralize personal loans for other investments. But when WestPoint's shares began to fall as earnings growth started to slow, lenders started growing antsy, and asked Green to freshen the collateral, making up the difference in stock price.

In a move that aided Green enormously, putting millions into his pockets and helping to bail him out, in 1991 WestPoint declared a $2 a share cash dividend, a move that cost the company about $100 million — which could have been used to pay down debt — much of it going directly to Green as majority shareholder. The move served to further anger bank lenders, who wanted to see the company pay down debt.

In a further miscalculation, after WestPoint stock had lost a third of its value, in 1990 Green tried to round up investors and take the company private in a $1.5 billion leveraged buyout, paying about $22 a share for the company. The WestPoint board approved the offer, but the deal ultimately fell apart when interest rates climbed, making the financing more expensive, and a key investor backed out.

At one point, Green also used his WestPoint stock, once valued at close to $40 a share, to collateralize loans made to his investment company. But when WestPoint's shares tumbled in value, lenders started growing antsy and asked Green to freshen the collateral, making up the difference in stock price.

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