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Non-Tech : FTL- Fruit of the Loom

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To: Arthur Tang who wrote (113)	8/11/2001 6:38:46 PM
From: Clement	Read Replies (1) of 161

Arthur: Unfortunately, there is no mid-term solution for shareholders. The one thing that is clear is that in either scenario (restructuring and emergence, or asset purchase), the shares are going to be wiped out. > Banks don't like $1.2 billion minus the asset sale > revenue haircuts, when they only have to put in $100 > million or less to keep it going until economy recovers From the perspective of a banker, commercial bankers are a lot more concerned about losing than they are about gaining. The odd thing about risk return for commercial bankers is that the consequences for failure are proportionally worse than that of success. Although it may make sense to you and I to inject another $100M, a banker would be more concerned about saving what he could as soon as possible. A bird in the hand is better than two in the bush... The banker knows that the market value for FTL is in the order of $650-800 or whatever the auction results in -- and what if sales over Christmas aren't as good as projected -- and then at this stage of the game, it's a waiting game -- and the concern about the time value of money. It is unlikely that the bankers would want to wait while FTL continues to consume cash and potential for recovery becomes more uncertain. The risk adjusted capital in Fruit of Loom is a lot higher than it was before given that it is in bankruptcy. If vultures have not purchased the bank debt already, the bank will look at the capital in FTL like venture capital taht would have a required return on capital of 25-30%. Therefore, the longer the wait, the longer before there is a return. Banks are not in the business of running companies. The shares are unfortunately going to be cancelled -- it is just a question of when. I for one believe it is likely the sale will happen. Clement

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