Pillowtex files for Chapter 11 bankruptcy protection, begins bankruptcy auction

By Carlise Newman

Chicago, July 30 - Pillowtex Corp. filed a voluntary bankruptcy petition in the U.S. Bankruptcy Court in Wilmington, Del. under Chapter 11 and announced an agreement to sell of all of its assets to GGST LLC, including substantially all of its plants, equipment and brands, subject to court approval

During the bidding process, the company will not operate its manufacturing facilities and will use available inventory to service its existing customer business, and will conduct going-out-of-business sales at its Fieldcrest Cannon Stores.

The company's advisors estimate that the bidding period will last 45 days, during which time any competing offers for the assets will be reviewed by the board of directors and company management. If no acceptable offers are received, GGST LLC will assume ownership.

GGST is a company formed by SB Capital Group, Gibbs International, Gordon Brothers Retail Partners and Tiger Capital Group.

Earlier Wednesday, Pillowtex said it closed its 16 textile manufacturing and distribution facilities and is terminating 6,450 salaried and hourly positions. The company said it does not have cash available to continue operating the business.

The company will initially retain a staff of 1,200 employees in distribution, support services, accounting and human resources to assist with the bankruptcy proceedings and employee communications. Company management formally notified its employees today of its decisions.

The Kannapolis, N.C.-based home fashions manufacturer has contacted state and federal Departments of Labor and local human service agencies to help facilitate a schedule for helping displaced workers.

"Since emerging from bankruptcy in May 2002, we have worked diligently to attempt to restructure our operations and regain profitability," said Michael Gannaway, chairman and chief executive officer of Pillowtex, in a news release. "We conducted a thorough review of multiple strategic options, but have exhausted that process and are facing a liquidity crisis that now forces us to cease operations.

"Due to soft consumer demand, the intensity of foreign competition, industry over-capacity and downward pricing pressure in all of our categories, the Company simply cannot operate profitably in the current environment and with our current business model," Gannaway continued.

As of March 28, Pillowtex had $96.6 million outstanding in on its exit revolver, $108.4 million on an exit term loan and $11.4 million in industrial revenue bonds and other debt.

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