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WestPoint Gets Second Life From White Knight

Don Hogsett -- Home Textiles Today, March 7, 2005

West Point, Ga. — Contrarian investor Wilbur Ross — who bucks the conventional wisdom by buying and resuscitating companies and industries written off as all but dead — has cut a deal to buy bankrupt textiles producer WestPoint Stevens. The move ensures the continued survival of the nation's largest towel producer and positions it to emerge from Chapter 11 as a debt-free and newly competitive force in the industry.

The deal, valued at roughly $687.5 million, puts an end to months of squabbling among WestPoint's various creditors — behind-the-scenes wrangling which has blocked the company's emergence from bankruptcy as bickering investors try to get more for themselves and less for others. The arguing continued among investors as they ignored the plight of a company whose sales and market position has eroded as customers and suppliers began to question the company's continued survival, especially after the earlier demise of Pillowtex Corp.

WestPoint's white knight is billionaire investor Wilbur Ross, who throughout his long career has specialized in bankruptcy restructuring and distressed companies. Now, through an investment company he formed four years ago, WL Ross & Co., he has turned his attention to the struggling American textiles industry.

Earlier, Ross bought out two other bankrupt textiles companies — Burlington Industries and Cone Mills — knitting them together as the International Textiles Group. Now he's turned his attention to reviving a once-proud company brought low by excessive debt rung up to add capacity just as low-cost imports challenged the American home fashions industry, making much of that capacity suddenly redundant.

Under the terms of the deal, an investment group led by Ross will buy substantially all of the assets of WestPoint Stevens, putting in $480 million to pay down secured debt, and raising another $207.5 million through a rights offering.

The new company Ross is forming would also pay down WestPoint's current debtor-in-possession loans, allowing it emerge from bankruptcy entirely debt free. With an unencumbered balance sheet, and updated plants which make it the nation's low-cost towel producer, WestPoint could rapidly reposition itself as an industry powerhouse, and in a sudden reversal of fortune start to pose a formidable threat to its larger rival, Springs Industries Inc., with its limited domestic towel production.

In recent months, WestPoint has attracted the attention of another investor, maverick corporate raider Carl Icahn, who snapped up much of WestPoint's debt, starting with the second lien. The move put Icahn in a position to engineer his own takeover of the company.

The package Ross has put together seems, on the face of it, to provide a big payday to Icahn — so long as he doesn't try to block the deal. WestPoint and Ross said in separate press releases “second lien facility holders would receive $10 million released from escrowed adequate protection payments provided they do not object to the transaction.”

Thanks to balky creditors, whose bickering has forced the company to write and re-write a business plan more favorable to their interests than the company's, WestPoint has remained in Chapter 11 far longer than it had originally anticipated, almost two years, since June 2003.

Clearly eager to get the company out and back on its feet, Ross has inserted a “drop dead” provision in the deal, requiring that WestPoint emerge from bankruptcy and complete the purchase agreement by July 31 or all bets are off.

But chances are that WestPoint will be out of Chapter 11 and the deal put to bed much sooner, said Lorraine Miller, WestPoint senior vice president of finance. “We hope to be out well before that, by the end of the second quarter,” or the end of June, she said.

Eager to get the deal done, Miller said WestPoint will likely file a new plan with the bankruptcy court some time this week. “The way it works, then the court sets a date for bids to be filed for a potential auction.”

Acting to preempt any possible competition in an auction, the deal Ross and WestPoint have inked provides Ross the investor with a $5 million breakup fee if the company goes to a higher bidder in an auction to be held, largely as a formality, by the bankruptcy court.

Not entirely clear is who Ross's partners are in the investment group he's formed to buy WestPoint Stevens. Ross told Home Textiles Today the group is composed of five parties, but only two are identified in the press release issued by Ross and WestPoint — Contrarian Capital Management and CP Capital Investments — leaving the door open for potential offshore investment in the company.

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