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Pillowtex avoids default of debt with amendment

Getting some much-needed relief from its lenders, Pillowtex Corp., fresh out of bankruptcy, said lenders have cut it some slack by amending debt covenant requirements for the current third quarter, keeping the major mill out of a possible default on its debt.

Michael Harmon, Pillowtex cfo, said the company was caught between a rock and a hard place — falling sales of its products and debt requirements based on overly optimistic sales forecasts — and asked its lenders for more breathing room, and got it.

Harmon said, "A difficult retail environment combined with covenants that were based upon projections prepared in connection with the company's plan of reorganization filed in December 2001 had put in doubt the company's ability to meet those covenants in the term-loan agreement for the third quarter. As a result, the company sought and obtained from its term-loan lenders a waiver form compliance with those covenants for the third quarter."

Pillowtex is now regrouping and preparing an updated sales forecast, Harmon said, "and once the revised projections are completed, the company and the term-loan lenders will review the financial covenants in the term-loan agreement as they apply to future periods."

The major mill also said it expects "to be in compliance with all of the covenants in its revolving credit agreement at the end of the third quarter" and that availability under the revolver was about $76 million as of Sept. 23.

Wall Street applauded the move and gave a boost to Pillowtex stock, moving it up by 11.4 percent a share, or $0.20, to a level of $1.95. Even with the move higher, Pillowtex stock is now down about 78.7 percent from a high of $9.15 recorded after the company exited Chapter 11.

Deeply in debt following a long string of costly acquisitions, including the buyout of Fieldcrest Cannon, a company twice its size, and hammered by falling sales, Pillowtex ousted its former ceo Chuck Hansen and was forced into bankruptcy last year. As part of a sweeping overhaul of operations, the company has sold or shuttered 13 manufacturing plants, reduced its asset base by half and cut its work force by about 35 percent. Coming out of Chapter 11 in a debt-for-equity swap that surrendered ownership of the company to its lenders, Pillowtex whittled down a crushing debt load of about $1.1 billion to roughly $205 million.

In subsequent moves to rebuild the company and fortify its arsenal of powerhouse brands, Pillowtex hired brand-builder David Perdue away from footwear producer Reebok as ceo and more recently hired a Sara Lee exec, Michael Gannaway, as new president and coo, replacing Tony Williams, who has resigned.

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