WestPoint, WL Ross defend sale plan as best choice to maximize value, break reorganization logjam

New York, April 6 - WestPoint Stevens Inc. and the investor group WL Ross & Co. LLC defended the agreement to sell the company to the Ross group as the best means to maximize value for creditors, break the stalemate over how to reorganize the company and preserve its jobs and business.

And they pointed out that the proposed court-supervised auction gives creditors a further guarantee that they will get the highest possible return.

WestPoint said that it has been trying to reach a compromise between its competing creditor groups for the last seven months.

However neither the steering committee that holds a majority of the first lien claims nor Carl Icahn's Aretex LLC "have shown any indication they will reach a consensus," WestPoint said in a filing with the U.S. Bankruptcy Court for the Southern District of New York.

"The debtors are therefore using the stalemate for the benefit of their estates by compelling the first lien lenders to bid up the assets," WestPoint said.

The company added that continuing with no progress will simply damage the business.

And without an auction there is little likelihood of a resolution since both the steering committee and Icahn can block confirmation of a plan of reorganization and both are insisting on control of the restructured company, WestPoint said.

WestPoint added that it tried to "break the impasse" with a compromise plan that would give control to the part investing most new money but "to no avail."

WestPoint announced on March 1 that it had entered into a definitive agreement to sell the company to the WL Ross-led 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.

WestPoint noted that there had been a number of objections to the bidding procedure - which it believes can be easily resolved - and to the break-up fee, which it thinks should be kept in place.

There are also issues about whether the first-lien lenders are entitled to credit bid, whether competing bids must be in cash and whether the second-lien lenders can object to a sale and receive a distribution under a competing proposal that does not pay the first-lien lenders in full in cash.

WestPoint proposed an additional hearing on April 28 to address these issues, giving more time for the parties to prepare themselves while allowing the company to continue with marketing itself to potential buyers.

Other objections should be addressed at the final sale hearing, not the hearing on the auction procedures.

In its argument for the sale to go ahead, the WL Ross group said "the debtors have taken the first crucial step in producing the highest value for their assets."

If Aretex is unhappy at not being selected as the stalking horse, it can make a higher bid at the auction, the investor group argued.

"Accordingly, there is only upside to approving the bidding procedures motion and proceeding promptly with the auction. By contrast, the cost of delay could be enormous," the WL Ross group added.

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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