WestPoint Stevens' unsecured creditors, second lien agent object to sale to WL Ross group

By Ellen Chang

Houston, March 28- WestPoint Stevens Inc.'s unsecured creditors and the agent for its second lien agents said they oppose the proposed sale of the company to an investor group made up of WL Ross & Co. LLC and holders of a majority of the company's senior credit facility, including Contrarian Capital Management and CP Capital Investments.

Wilmington Trust Co., the agent for the second lien agent credit facility, said in a Friday filing with the U.S. Bankruptcy Court for the Southern District of New York, that the proposed sale gives better treatment to creditors junior to the second lien lenders - something impermissible under the bankruptcy code and violating rights granted by the court to the second lien lenders that they be paid ahead of other administrative claims.

The official committee of unsecured creditors, meanwhile, said in a filing Monday that the bidding process will not bring the maximum value for WestPoint's assets.

Wilmington Trust said in its objection that the asset purchase agreement is not a "simple transfer of assets."

The agreement provides for the sale of assets by the company to the purchaser "in return for the transfer of value to different classes of creditors - creditors senior to the second lien lenders and, fatally, creditor junior to the second lien lenders, while leaving little or nothing to pay the secured/superpriority claims of the second lien lenders."

Wilmington Trust added that "worst of all, such junior priority unsecured claimants are being paid out of value ... - at least $30 million and possibly much more - in excess of the debtor-in-possession lender and first lien lenders' claims, that as a matter of law belong to the second lien lenders."

The court should not approve a sale "that is designed to flow such value to claimants junior to the second lien lenders in violation of the bankruptcy code and its own prior orders over the second lien lenders' objection," Wilmington Trust said.

The outstanding principal due under the second lien credit facility was $165 million at the time of the Chapter 11 filing.

"A two-horse race"

In its objection, the official committee of unsecured creditors said it objects to the sale because the process is not designed "to foster maximum participation so as to enhance bidding and maximize value for the debtors' assets."

The committee said the company appears to be frustrated by the disputes among the secured lenders and has "thrown in the towel and have engineered a sale process and bidding procedures that will chill third party bidding and effectively result in a two-horse race between Icahn and the steering committee."

The committee said the sale is a "poorly disguised transfer" of the company's assets to its secured creditors in "satisfaction of their claims."

The company has not provided any record of a marketing process, the committee said.

The court should halt the sale process so that the company has enough time to market its assets to other parties.

The committee also said the sale should not include a stalking horse bidder and that there is no justification for the break-up fee because it will not maximize value for all creditors.

WestPoint Stevens announced on March 1 that it had entered into a definitive agreement to sell the company to the investor group.

The agreement calls for the sale of substantially all of the assets of WestPoint Stevens.

The deal is expected to close by July 31 and a breakup fee of $5 million will be paid if a sale to a higher bidder occurs - the investor group will be the stalking horse bidder in an auction.

As part of the agreement, the new company would contribute up to $480 million of presently outstanding senior secured debt to the Chapter 11 estate.

Equity of the new company will be distributed to holders of outstanding senior secured debt and the new company will conduct a rights offering, underwritten by the investor group, to raise $207.5 million of equity capital.

All of WestPoint Stevens' senior credit facility holders will have the equal right to participate and in certain circumstances WestPoint Stevens' second lien facility holders could participate.

The new company will repay WestPoint Stevens' debtor-in-possession loan, satisfy certain administrative claims and assume WestPoint Stevens' ordinary course payables and certain other post-petition liabilities, including bankruptcy emergence costs.

Holders of WestPoint Stevens' second lien facility would receive $10 million released from escrowed adequate protection payments provided they do not object to the transaction. They will receive additional consideration in certain other events if the sale is completed.

Following the sale, WestPoint Stevens' unsecured creditors could receive a small distribution.

All shares of its common stock would be cancelled with no payment.

WestPoint Stevens, a West Point, Ga.-based textile firm, filed for bankruptcy on June 1, 2003 in the U.S. Bankruptcy Court for the Southern District of New York. Its Chapter 11 case number is 03-13532.

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