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WestPoint garners additional financing

WestPoint garners additional financing WestPoint, GA — Raising enough cash to see it through the next few critical months in a weakened environment for textiles sales, WestPoint Stevens Inc. has completed a $165 million second-lien financing pact.

The new deal provides some much-needed wiggle room for the textiles giant after sharply falling sales in a stalled-out retail environment had resulted in a severe cash crunch at the major mill. Underlining the severity of the current squeeze on cash flow, WestPoint was able to make a scheduled $39 million bond payment last month only by borrowing the money from its revolving line of credit.

Investors were clearly cheered by news of the cash infusion, and drove WestPoint's stock, battered in recent months, up by almost a third, or 29.4 percent, to $1.76 a share. But stock in the textiles titan is still off by more than 87 percent from a 52-week high of $14.31 a share. In recent weeks, the stock had fallen as low as 96 cents a share, after analyst Kay Norwood of Wachovia Securities, Charlotte, NC, downgraded the stock to a "sell," citing falling sales and concerns about the company's liquidity.

But the new relief comes at a high price -- a double-digit interest rate. "I'd been hearing 14 percent priced to yield 17 percent," said Norwood. "That's expensive. That's enough to reduce earnings per share by about a nickel each quarter."

WestPoint did not spell out the interest rate it's paying on the new financing, but did say that interest expense during 2001 will rise by about $10 million, to $145 million from a prior estimate of $135 million.

"So it looks to me like debt is going up, not down; and interest expense is going up, not down. That's not a healthy situation," said Norwood.

WestPoint said it's using part of the $165 million financing pact to pay down its revolving credit line, and the balance "will provide additional liquidity for working capital and general corporate purposes."

But the net effect of the deal is still to increase long-term debt on a pro forma basis, including the new financing pact, to $1.713 billion as of March 31, from a prior level of $1.698 billion.

How much time does the $165 million in fresh financing buy for the company? "It all depends on the economy and what happens over the next couple of months," said Norwood. "If you think the economy is going to come back strong in the second half, then all they need is this interim protection. Clearly, what happens in the second half is important to them."

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