There was a failed auction for Pillowtex's bank debt held last Monday, when bids came in a few notches short of the asking price. Bank of Nova Scotia, an original lender, was rumored to be the seller. A bank spokeswoman declined to comment on any trading. Dealers said the paper was offered in the mid-30s, but that bids probably came in around the low 30s. With the textile industry struggling on a weaker economy, the paper is described as a hard sell. "Textiles are just not doing well, and the company's in bankruptcy," said a trader. The Dallas-based company makes home textiles.
While most details on this auction could not be ascertained, Morgan Stanley was said to be one of the invited players. Typically auctions are conducted by phone or fax. Between three and six banks are invited and have a window of time to call in a bid. The seller gives a floor set, the minimum amount that would be required to make a sale. In this case, the floor set was in the mid-30s. Trading desks have no knowledge of where their competitors' are bidding. By the end of the day, a desk is informed if it made the winning bid. By the time an auction's over, a dealer may ask what's the cover, meaning how much higher his bid came in over the closest bid. "You want to win by as little as possible," a dealer explained.
Pillowtex's bank debt dropped late last year from the low 60s to 55 after the company filed for Chapter 11 [LMW, 11/20].