TALES OF THE TAPE: WestPoint Stevens Holders' Hopes Fade
31 Jan 07:30
By Mary Ellen Lloyd
Of DOW JONES NEWSWIRES
(This was originally published Thursday.)
CHARLOTTE (Dow Jones)--Opportunities may be drying up for beleaguered
shareholders of WestPoint Stevens Inc. (WXS) to recoup their losses.
The New York Stock Exchange suspended trading of the towel- and sheet-maker's
shares on the Big Board Thursday. While the company's shares were accepted to
begin trading over the counter, several company watchers believe that a Chapter
11 bankruptcy filing or other balance-sheet restructuring is inevitable, given
its $1.57 billion debt load and shaky retail trends.
Lorraine Miller, head of investor relations for WestPoint, declined to
comment on the chances of a Chapter 11 filing or some other reorganization, but
said the company continues to have good working relationships with its banks.
"We've said we're looking diligently at different ways to address the balance
sheet, but we have nothing publicly to say at this time," Miller said.
Equity analysts threw in the towel on WestPoint, the second-largest U.S.
producer of home textiles after privately held Springs Industries Inc., and
stopped following the company months ago.
WestPoint's shares, which had traded as high as $37.18 in May 1999, closed
Wednesday at 45 cents, a 52-week low. The stock has traded below $5 since
mid-2001, except for a brief jump to $6.05 in April 2002 after the company
reported a stronger-than-expected first quarter.
Under its new OTC ticker symbol, WSPT, shares recently traded down 7 cents at
38 cents.
Bankruptcy reorganizations often leave common shareholders with nothing since
they stand in line behind secured lenders and bondholders when assets are
distributed. The company could also ask bondholders to exchange debt for stock,
which company watchers say would likely dilute shareholders' ownership.
It's "not a question of if they're going togo into a reorganization or have
to reorganize their balance sheet," but whether weak short- or mid-term results
force WestPoint to reorganize before 2004, when a senior credit facility led by
Charlotte-based Bank of America Corp. (BAC) and several other lenders comes
due, said Andrew Leinoff, a fixed-income analyst for APS Financial Corp.
Those lenders have repeatedly relaxed financial hurdles WestPoint must hit in
order to avoid default on the loan, which stood at $400 million Sept. 30. In
September, lenders set a minimum consolidated earnings before interest, taxes,
depreciation and amortization of $46.4 million for the December quarter, and
said the company's debt cannot exceed 7.47 times its EBITDA. Bank of America
declined to comment on its customer.
WestPoint said last week it expects EBITDA of between $55 million and $57
million in the quarter that ended Dec. 31, ahead of its prior forecast.
Spokeswoman Miller would not elaborate on WestPoint's recent or expected
performance ahead of its Feb. 11 earnings release.
"The most important statement we can make is we're continuing to generate
strong cash and using that to pay down debt, and we're in compliance with our
financial covenants and have good liquidity," she said.
Indeed, in December WestPoint paid $39 million in interest to holders of its
two series of 7 7/8% bonds. The company anticipates making its June coupon
payment, Miller said.
Insufficient Cash Versus Debt
Through Sept. 30, WestPoint's sales were flat at $1.3 billion, and its net
loss narrowed to $12.6 million, or 25 cents a share, from $24.8 million, or 50
cents a share, a year earlier. The company listed a total deficit of $776.9
million on its balance sheet. Interest payments were expected to total $136
million for the year, more than twice the amount WestPoint had paid toward
long-term debt so far in 2002.
"They don't have any near-term debt maturities, so there's nothing imminent
that could create an issue for them," said Philip Zahn, a credit analyst with
Fitch Ratings. "But they don't generate enough cash flow to be able to pay down
their debt load very meaningfully over the near term. When this debt starts to
come due, that's when they face a decision."
WestPoint's senior unsecured debt rating is triple-C minus.
After the company's senior debt comes due in November 2004, the company's 7
7/8% senior notes mature in 2005 ($525 million) and 2008 ($475 million). The
company also has a $165 million second-lien pact.
Leinoff believes some lenders are willing to relax covenants to maximize debt
repayments. He rates the company's bonds at speculative buy on the theory that
bond investors might profit from a company reorganization.
"As far as the poor shareholders are concerned, the stock price already
reflects where they are," he said.
Tough Economic, Retail Conditions
Company watchers say WestPoint has decent market share and good products.
The West Point, Ga., company invested heavily in the mid-1990s to upgrade
equipment and compete with imports. It has some high-profile licenses to make
linens and other home fashions for Martha Stewart, Disney Home and Ralph Lauren
Home, in addition to its own brands of Martex, Lady Pepperell and Vellux.
Top customers include Target Corp. (TGT), Wal-Mart Stores Inc. (WMT), and
Kmart Corp. (KMRTQ), which generated about 15% of WestPoint's business in
recent years.
WestPoint has taken increasing reserves for bad debt as Kmart works through a
Chapter 11 bankruptcy reorganization. But WestPoint is gaining new business
with other customers, such as Kohl's Corp. (KSS) and Bed, Bath & Beyond Inc.
(BBBY), to make up for the expected declines in the Kmart account, Miller said.
Meanwhile, WestPoint is also battling tough economic and retail conditions.
Retailers are demanding ever-steeper discounts amid weak sales, and cotton
prices are rising, said Richard Hastings, chief economist and retail sector
analyst with Cyber Business Credit LLC, a New York credit consultant to
retailers and their suppliers.
If WestPoint does file for Chapter 11 protection, it would be the second time
in just over a decade. Founded in 1866 and first taken public in 1965,
WestPoint was overwhelmed by debt from a 1989 buyout and filed a Chapter 11
bankruptcy petition in 1992. It emerged from bankruptcy later that year.
In the near term, WestPoint could see cash flow hurt if it is unable to
replace its trade receivables lender. The current lender, Charlotte-based
Wachovia Corp. (WB), declined to renew its pact for another year, giving
WestPoint a 45-day extension on the loan to Feb. 17 while WestPoint lines up
another lender. WestPoint had sold $160 million on its accounts receivable
through Sept. 30.
Wachovia, which is also among the senior secured lenders, declined to comment
on its customer. WestPoint is "well along" in the process of closing a deal
with another financier and expects no impact on cash flow, Miller said.
Corporate Web site: westpointstevens.com
-By Mary Ellen Lloyd, Dow Jones Newswires; 704-371-4033;
maryellen.lloyd@dowjones.com
(END) Dow Jones Newswires
01-31-03 0730ET |
