Court OKs Pillowtex reorg plan

Don Hogsett, May 6, 2002

Kannapolis, NC — Clearing a final hurdle as it prepares to emerge from Chapter 11, Pillowtex Corp. has received U.S. bankruptcy court confirmation of its plan of reorganization, a legal green light that enables the textiles producer to wipe the slate clean of $700 million in debt.

"The decision by the court paves the way for us to emerge from bankruptcy by June 30," said Tony Williams, president and coo.

The news from the Delaware bankruptcy court was a fifth straight shot of good news for a battered textiles industry that now looks like it's finally starting to climb back on track after several years of reversals sparked by the Southeast Asian fiscal crisis and a wave of low-cost imports that swamped U.S. producers. Earlier, WestPoint Stevens put up a first-quarter profit, recovering from a year-ago loss; Dan River Inc. reported a stronger-than-expected quarterly performance, helped by strong margin improvement; steering toward a turnaround, long-troubled Cone Mills reported a first-quarter profit; and Mohawk Industries drove its profits higher by 59 percent.

When Pillowtex finally emerges from the shadow of bankruptcy some time next month, current shareholders are wiped out as all the company's existing common and preferred stock is cancelled. In a debt-for-equity swap common to such bankruptcy settlements, new common stock and warrants will be issued, most of it going to the banks and bondholders that have taken the $700 million haircut.

The Pillowtex that turns the page to a new chapter will carry a more manageable debt load of $400 million — compared with $1.1 billion before the bankruptcy filing. It will also be a leaner, more compact, more focused home fashions company with fewer plants, fewer workers and possibly lower costs and higher margins. Winding down excess capacity, Pillowtex has shuttered a dozen plants since filing for bankruptcy protection, sold off its foundering blanket business and laid off more than 1,000 workers.

Saddled by a debt load rung up in a long string of acquisitions — dating all the way back to the Fieldcrest buyout of rival Cannon Mills and culminating in Pillowtex's purchase of the entire Fieldcrest Cannon operation — Pillowtex sought the shelter of the bankruptcy courts 19 months ago, in November 2000, after ousting then chairman and ceo Chuck Hansen.

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