Throwing in the Towel

WestPoint Stevens Inc. (West Point, Ga.), the country's largest manufacturer of bed linens and bath towels, has filed for Chapter 11 bankruptcy protection.

The company, whose brands include Martex, Utica, Stevens, Lady Pepperell, Grand Patrician, Vellux, Simmons BeautyRest, the Martha Stewart bed and bath lines and licensed products for Ralph Lauren, Disney and Joe Boxer, has been struggling under more than $2 billion in debt. At the time of its filing, it accepted the resignation of its top executive, ceo Holcombe Green Jr. Current president M.L. “Chip” Fontenot will become interim ceo.

The move marks the second time in less than a dozen years that the company has been entangled in bankruptcy court, and caps several years of financial turbulence.

According to reports, the filing also reveals how Green's aggressive borrowing and spending program hobbled the company, which said the Chapter 11 filing will help it “return … to profitability” and “compete more effectively.”

Under Green, WestPoint Stevens borrowed money and spent $585 million from 1997 through 2001 to upgrade its mills. While it closed plants and fired hundreds of workers in an attempt to stay competitive, there are no plans to close any current plants as part of the bankruptcy court filing.

In the process of erasing debt, WestPoint Stevens also will wipe out its current shareholders. Their stakes will be worthless, while debt holders will wind up owning a majority stake in the company.

In 1989, Chicago industrialist William Farley tried to take over the company (then known as WestPoint-Pepperell), but ran out of money before he could buy the whole company and wound up taking his acquisition firm into bankruptcy court. His creditors then divvied up WestPoint-Pepperell. Emerging from that reorganization was Green, who at one point owned about a third of the company. But he lost much of that stake when lenders took his stock after another company he controls failed to repay a loan.

While debt relief will give the company some breathing room, an analyst insists “taking away the debt doesn't solve all their problems.” He notes that WestPoint Stevens also faces a weak economy; the bankruptcy reorganization of Kmart, which is a major customer; and competition from imported goods.