Contrarian Capital Management, Satellite Senior Income Fund and CP Capital Investments, holders of WestPoint Stevens' first-lien debt, have brought in Wilbur Ross to buy the bankrupt textile company, in what could prove a highly contentious deal. Ross, chairman and ceo of WL Ross & Co., has proposed a plan under which holders of the $440 million first-lien debt will receive equity in the new company, New Textile Holding Co. Ross and his group will also conduct a $207.5 million rights offering, in which all of WestPoint's senior credit facility holders could participate. But the deal does not sit easy with some of the second-lien lenders who are slated to get just $10 million.
Ross does not own any WestPoint debt. He said his involvement in other textile companies prompted the call from WestPoint's creditors. "I had already bought Burlington [Industries]. I had Cone Mills and a little Canadian company Cleyne & Tinker," he said. "So in the merging of other textile companies we were approached by the creditors who own a majority of the first-lien notes in WestPoint Stevens to ask if we would help them bring them out of bankruptcy."
Contrarian, CP and Satellite are majority holders of WestPoint's senior credit facility. Carl Icahn's Icahn Associates is a lender in the first-lien group, but is not in the 51% majority group. Icahn also owns portions of the second-lien debt. The company's first-lien was quoted in the 75-76 range.
According to Ross the agreement is beneficial in terms of recovery for the second-lien lenders who hold $165 million. The second-lien lenders are being offered $10 million that will be released from an escrow account provided they do not object to the transaction. WestPoint's second-lien was done as a rescue financing in 2001 and was held by GSC Partners, Perry Capital and ESL Investments (LMW, 7/26). It could not be determined if they all still hold the debt.
But not everybody agrees with Ross' view. "I think that what he is doing is going to be detrimental to the second-lien guys," a distressed investor said. "They are going to get virtually nothing under Ross' proposal." Ross responded that before his plan the second-lien lenders "weren't going to get anything." He added, "The unfortunate thing is that there really isn't any value for the equity or for the unsecured creditors. We are giving a little bit of value to the second-lien holders. But fundamentally there is only enough value here for the first-lien holders." This is a view shared by a first-lien lender that had exited his position some time ago. "That [second-lien] paper was really hammered," he said. The debt may have been quoted at 11-14, but it was very illiquid. "They are being thrown something rather than being given zero," he added.
Ross' bid is final but has to be approved by the bankruptcy court. The court will designate an auction process if competing bids are placed and there is a $5 million breakup fee. It is logical that the second-lien holders, including Icahn would launch a bid, one lender said. If a competitor would appear "then we'd have to decide whether we'd want to match or what we wanted to do," Ross concluded.
The Blackstone Group's Art Newman is representing the second-lien holders and was traveling and could not be reached. Tom Mayer, a partner at Kramer Levin Naftalis & Frankel and counsel to the second-lien holders, declined comment. Officials at the funds, including Icahn ASsociates, either declined comment or did not return calls.