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Guilford Mills warns of bankruptcy possibility

With losses more than tripling, sales falling off by more than 20 percent and in violation of restrictive debt covenants, textiles producer Guilford Mills warned that it could be forced into bankruptcy if it was unable to refinance about $270 million in debt or win some breathing room from lenders.

Guilford said that unless it could refinance by Jan. 18, or have lenders waive existing covenants, it would be in default under senior loan agreements, giving creditors the right to call in their loans and liquidate the collateral — "substantially all of the company's domestic assets," said Guilford.

In a persistently weak environment that has battered its apparel fabrics business, Guilford recorded a fourth-quarter loss of $113 million, almost five times the size of last year's $24.2 million deficit.

Sales in the closing quarter fell by 21.3 percent, to $145.5 million from $185.0 million, led by a steep 46.5 percent in apparel fabrics. Sales fell off by 6.2 percent in the automotive fabrics unit, to $77.2 million from $82.3 million.

And despite a solid 9 percent increase in its rapidly growing bedding business, waning sales of home fashions fabrics generated a 5.3 percent drop in sales for Guilford's home unit, to $19.3 million from $20.4 million. But thanks to the strong bedding business, fueled by the Jockey Home program, home fashions remained the strongest of the company's three core product divisions.

Guilford said it has "continued to experience tightened lending practices from traditional financial institutions, due principally to precipitous earnings declines and uncertainty within the industry. The industry has likewise been generally unable to obtain additional capital from appropriate financial markets. The absence of a long-term commitment by Guilford's domestic lenders has exacerbated the company's poor performance, due to increased concerns by both trade credit and customer constituencies."

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