WestPoint Stevens Files for Bankruptcy Protection

CHICAGO -- WestPoint Stevens, the latest in a long line of U.S. textile makers to file for bankruptcy, on Monday said it struck a deal with bondholders in hopes of emerging from Chapter 11 protection quickly, according to a Reuters report.

WestPoint, the No. 2 U.S. linens company and maker of Martha Stewart (News) sheets and towels for discount retailer Kmart Corp., said bondholders tentatively agreed to a restructuring deal that includes trading debt for equity.

The company filed for bankruptcy protection in New York on Sunday, marking the second time it has been in Chapter 11 in a little over a decade.

Richard Hastings, a retail analyst with consulting firm Bernard Sands, said the bankruptcy filing was widely expected and won't hurt Kmart or other U.S. retailers that depend on WestPoint for supplies.

"This is a company that needed a financial fix-up for a long time ago," he said. "The industry segment that they're in is fundamentally not healthy. There has been diminished pricing power and rising competition from lower-cost overseas manufacturers."

Kmart's largest shareholder, hedge fund ESL Investments, is also a major WestPoint bondholder. The head of ESL, Edward Lampert, became chairman of Kmart when the retailer emerged from bankruptcy last month.

As part of WestPoint's agreement with bondholders, Holcombe Green agreed to resign as ceo. WestPoint named Chip Fontenot, its president and coo, as interim ceo.

DEMISE OF TEXTILE INDUSTRY

A number of U.S. textile companies--including Fruit of the Loom Ltd., Pillowtex Corp., Burlington Industries and Malden Mills Industries--have filed for bankruptcy in recent years, hurt by rising costs and huge debt piles. Fruit of the Loom was bought by Warren Buffett's Berkshire Hathaway last year.

"What we have here is a continuation of the demise of the American textile industry," said Bill Brandt, head of restructuring firm Development Specialists "In the end, you can't cut your way out of a noncompetitive situation. You can't reduce your costs to zero."

Many companies have moved operations offshore to lower costs, particularly for the labor-intensive "cut-and-sew" operations that make everything from towels to T-shirts.

The United States is poised to lift textile export quotas for China and other World Trade Organization countries at the end of next year, a move analysts expect will shift even more manufacturing to places like China.

Bill Rochelle, a bankruptcy lawyer and partner with Fulbright & Jaworski, said WestPoint boasts well-known brands and loyal customers, but "domestic textile manufacturing is a dodo bird".

"What will be fascinating to observe is whether Lampert and company will simply de-leverage WestPoint or ... contract out the manufacturing abroad and turn the U.S. side into a sales and marketing company," he said.

SEEKING APPROVAL ON FINANCING

WestPoint, founded almost 200 years ago, employs about 14,600 people and recorded $1.8 billion in 2002 net sales. It makes Martha Stewart and Joe Boxer products for Kmart, and also sells Patrician, Martex and Utica linen brands.

The company is seeking bankruptcy court approval in New York for $300 million in financing from a group of lenders led by Bank of America, according to court documents. WestPoint said it would need up to $175 million over the next 20 days to keep operating.

In its bankruptcy filing with the U.S. Bankruptcy Court for the Southern District of New York, WestPoint listed assets of $1.33 billion and debts of $2.16 billion, as of March 31.

WestPoint said its common stock would be canceled as part of a restructuring agreement, and current shareholders would likely get nothing for their stock. Shareholders are last in line to get paid in bankruptcy cases.