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WPS gets reprieve with $165M financing pact

But ceo Green loses majority stake as banks seize stock

Don Hogsett -- Home Textiles Today, July 9, 2001

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.

But in a separate and stunning setback with far-reaching implications for the company, chairman and ceo Holcombe T. Green Jr. is being stripped of his majority stake in the company, so far surrendering more than 9.4 million shares of his WestPoint stock to three banks — the collateral he put up to secure a $250 million loan he defaulted on last September. (See separate story on page 23.)

The new financing 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 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."

Holcombe Green Jr., chairman and ceo, commented, "We are pleased that we were able to enhance our financial liquidity through this refinancing. WestPoint Stevens now has excellent liquidity and greatly improved flexibility under its bank credit facility. We believe WestPoint Stevens is well positioned to meet the challenges of today's extremely competitive retail environment."

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