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Pillowtex forced to file Chapter 11

Don Hogsett -- Home Textiles Today, November 20, 2000

DALLAS -Short on cash and long on bills, and finally boxed into a corner by its banks, Pillowtex Corp.-the feisty Dallas company that built itself into a textiles titan through a long string of acquisitions that piled up a mountain of $1.4 billion in debt-has filed for Chapter 11 protection from its creditors in a Delaware Bankruptcy Court.

Only two weeks after the company forced out its flamboyant ceo Chuck Hansen, who built Pillowtex up from a small pillow producer into the nation's second-largest bed and bath supplier, the company was forced to walk the plank itself, prodded by a group of banks that had run out of patience with a company that lost more than $67 million over the past 15 months, and whose sales continued to worsen.

As big as that Pillowtex debt load is at $1.4 billion, it's still a distant runner-up to the benchmark $2.4 billion that was owed by WestPoint Pepperell when it was forced into bankruptcy in May 1998, after a disastrous failed takeover by maverick Chicago financier Bill Farley.

And ultimately, the same forces that drove Farley and WestPoint into Chapter 11 eight years ago worked their voodoo with Pillowtex. Those factors: paying too much for the companies that they bought and piling up a daunting load of high-interest debt.

Regrouping quickly, and preparing to rebuild the business, Anthony Williams, newly named president and coo, said Pillowtex has already received a commitment for $150 million in debtor-in-possession (DIP) financing that will allow it to pay its employees, buy cotton and polyester and keep weaving sheets and towels.

Said Williams: "Pillowtex enjoys a portfolio of leading brand names, solid relationships with growing retailers, and a talented work force. We are moving quickly to build on these assets and position the company to be the undisputed leader in customer service."

In a big plus for Pillowtex, the sudden bankruptcy filing dispels a dark cloud of uncertainty that has hung above the company and allows it to focus on rebuilding its business instead of constantly haggling with its banks and soothing the fears of anxious suppliers that wonder when they'll be paid.

Kay Norwood, textiles analyst, said: "They can now start paying attention to the business. Absolutely the best thing is that the company's new strategic plan is near-complete, and this gives them the opportunity to start making it work without worrying about liquidity on the one hand and the banks on the other. Now they can focus on fixing the business."

And there's a lot to be done, according to Norwood. "They probably have too many assets, like most every other textile company," she said. "They make some things it doesn't make sense for them to make since they can't make any money doing it. And they have a lot of facilities [that] it makes no sense to run since they're so unprofitable. As they fix some of those things and work down their inventories, they should come out of this a much stronger company in the next 12 to 18 months."

What does all this mean to Pillowtex shareholders? "I guess what happens now is the current stock disappears, the preferred stock disappears, the subordinated debt is swapped for equity; and I don't know what happens to the bank debt.

"It's going to take some time to work out, but at least it gives the company breathing room to do what they need to do," she added.

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