Linwood, PA, September 19, 2005 -- Foamex International has announced that the it and certain of its subsidiaries have filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code. The company, which has been in active negotiations with its key creditors, also announced an agreement in principle with certain members of an ad hoc committee that collectively hold a majority of the company's Senior Secured Notes on the key terms of a proposed reorganization plan.
The agreement in principle would provide for a significant deleveraging of the Company's balance sheet and result in improvements to the Company's capital structure and profitability. Today's filings do not affect the Company's foreign operations.
In conjunction with its filing, the Company is seeking Bankruptcy Court approval of up to $240 million in revolving credit debtor-in-possession (DIP) financing agented by Bank of America, N.A. The proposed DIP financing, combined with the Company's cash flow from operations, is expected to provide the Company with sufficient liquidity to meet its post-petition operating expenses in the ordinary course of its business. With such funding sources the Company will be in a position to pay certain pre-petition obligations, including those owing to certain critical suppliers and employees, subject to Bankruptcy Court approval. Foamex has also received a commitment from Bank of America for exit financing upon the Company's emergence from Chapter 11.
Foamex will use Chapter 11 to implement its restructuring initiatives, which are designed to restore the Company to long-term financial health, while continuing to operate in the normal course of business. Foamex will seek to emerge expeditiously from Chapter 11, and it anticipates that its day-to-day operations will continue as usual without interruption during the Chapter 11 process.
Pursuant to the agreement in principle reached with certain members of the ad hoc committee, the Company would eliminate approximately $523 million of outstanding bond indebtedness that, in turn, would result in annual interest savings of $54 million. Specifically, holders of the Company's Senior Secured Notes would convert their debt into 100% of the equity of the reorganized Company, subject to dilution. If unsecured creditors (to the extent their claims are not otherwise treated as critical supplier claims or paid through assumption of their contracts during the case) and the holders of Foamex's Senior Subordinated Notes vote to accept the reorganization plan, then they will receive, on a pro rata basis, warrants to purchase between 5% and 10% of the equity of the reorganized Company, depending on the ultimate allowed amount of general unsecured claims. Under the agreement in principle, there would be no recovery for holders of equity interests in the Company.
"We believe this plan represents the best opportunity for Foamex to restructure its debt in an effective and timely manner," said Tom Chorman, president and chief executive officer. "The Chapter 11 process will allow Foamex to gain immediate liquidity and continue operating without interruption, while giving us the opportunity we need to restructure our balance sheet, strengthen our business performance and create long-term value."
Chorman added, "We expect to emerge from this process as quickly as possible with a more appropriate capital structure that will allow us to be a healthier, more competitive company. We greatly appreciate the ongoing support of our long-term lenders, senior debt holders, customers, suppliers and employees. Their continued backing has been, and will continue to be, an integral factor in our success."
