Fairness at issue, court looks closer at P’tex sale

Brent Felgner, August 25, 2003

New York — In advance of a scheduled Thursday afternoon court hearing, attorneys for Pillowtex’s unsecured creditors are negotiating with their counterparts at Pillowtex and GGST LLC in a bid to resolve a series of objections against the proposed liquidation procedures.

Fairness is at the core of the many issues under review.

Pillowtex has filed a series of motions with the U.S. Bankruptcy Court for the District of Delaware seeking, among other things, approval for the auction, as well as a contingency asset sale to GGST LLC for $56 million, if no other successful bids are received.

But the creditors’ committee and a variety of other interests, ranging from the U.K.’s Broome & Wellington as well as Welspun India, potential suitors, to Pillowtex licensee Ex-Cell Home Fashions, have objected to key elements of those proposals.

They’ve argued, in part, that the schedule is too ambitious and, intentionally or otherwise, may serve to limit potential bidders. Moreover, they further charge that the procedures are slanted in GGST’s favor and fail to protect Pillowtex’s, its creditors’ and licensees’ interests. Additionally, GGST’s more than $2.25 million in break up fees and expense reimbursement, they complained, are excessive.

In all, no fewer than 32 objections had been filed to various motions in the case by last Friday. Since the company filed for bankruptcy protection July 30, a little more than three weeks ago, 218 separate filings have produced nearly 4,100 pages of documents — a virtual avalanche of paper.

A hearing begun last Wednesday was carried over to this Thursday’s scheduled session. The original schedule, which called for a Sept. 4 bid deadline, a Sept. 10 auction and a Sept. 12 court ratification of the result, now seems all but out the window.

“I think it’s fair to say that the judge in the case agreed with the comments and objections raised by the committee — he indicated that he agreed with those concerns in some fashion, but didn’t tip his hand as to what his ruling might be,” said Mark Indelicato, an attorney with Hahn & Hessen LLP, New York, representing the creditors’ committee. “We’re talking with everybody in an effort to move the case along.”

Efforts to reach representatives of Pillowtex and GGST were unsuccessful.

Among the objectors was Broome & Wellington, the U.K. concern that described itself as “an interested bidder and prospective purchaser.” Broome & Wellington, along with Springs Industries, was in the first group of companies to negotiate to buy Pillowtex — unsuccessfully — prior to the Chapter 11 filing.

The Broome & Wellington’s objections included:

• “The ability of any bidder to conduct actual due diligence is severely restricted by the onerous terms contained in the bid procedures.”

• The proposed breakup fees are “far in excess of reasonable standards.”

• Pillowtex has “been imbued with unfettered discretion” to determine who is a qualified bidder.

• Competitive bidders are required to deposit up to 15 percent of their bid while GGST has made no such deposit.

“Since the debtors have disavowed any intention to reorganize, these cases should be run for the benefit of all creditors and done in a manner that allows an open and fair process. The proposed bidding procedures, bid protections and terms of agreement seem contrary to that aim,” the court filing stated. “Such bidding procedures are likely to discourage other bidders, like Broome & Wellington, from entering the process.”

Not only that, but the filing also argued that the deck was stacked against competing bidders:

“In order to obtain access to due diligence materials, qualified bidders must surmount various obstacles, which ironically may not be possible without access to the very information that the due diligence review would provide.”

While making slightly different arguments and using different language, the objections filed by Welspun and the creditors’ committee covered much of the same ground.

But those weren’t the only objections. Ex-Cell filed an objection to the timing of the disposition of the licenses, and others, such as Kohl’s Department Stores were present, ostensibly to protect intellectual property interests.

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