Judge Wary Of Pillowtex's Liquidation Plan

Wilmington, DE, Aug. 21--Calling Pillowtex Corp.'s liquidation plan "very, very unusual," a federal bankruptcy judge on Wednesday indicated he would encourage rival bids for what's left of the Kannapolis, NC-based towel maker, according to Charlotte Observer. Judge Peter Walsh all but said he's unlikely to approve Pillowtex's sale in its current form. That means the prospective buyer--the liquidation joint venture firm GGST LLC--could pull out. In a cordially combative 90-minute hearing in downtown Wilmington, Walsh and teams of lawyers began hashing out how to dispose of Pillowtex's assets. Pillowtex, one of the nation's biggest manufacturers of sheets and towels with nearly $1 billion in sales last year, said last month it would close all its plants and terminate all 7,650 workers, including 4,800 in the Carolinas. It was the largest mass layoff in NC history. The more money Pillowtex reaps from its assets such as plants, equipment and brands, the more money will flow to its creditors, including Charlotte's big banks and potentially Pillowtex's suppliers and former workers. And the company's future buyer will help determine which, if any, plants reopen--and who will own its well-known brands such as Cannon and Royal Velvet. Although Pillowtex has signed an agreement to sell virtually all its assets to GGST for an estimated $56 million, the deal requires court approval, and Walsh said he agreed with creditors that some of the deal's provisions would restrict competing bids. Two other companies--Welspun India Ltd. and British-based Broome & Wellington--have expressed interest in bidding, and a lawyer for at least one other potential bidder was in the courtroom Wednesday. "I don't think there is any point made by the creditors in its objection with which I disagree," said Walsh, leaning forward from his burgundy leather chair. "I can't state it any more strongly than that." In a setting often accustomed to nuance and compromise, that declaration set off a buzz of whispers among the 50 lawyers and advisers in attendance, who stopped jotting notes and checking digital pagers to look up at the judge. A final ruling on the matter is expected next week. Walsh's wariness over the proposed sales agreement--particularly the proposal to pay GGST $2.25 million in fees and expenses if its deal is never consummated--is reminiscent of a case earlier this year involving another Delaware bankruptcy judge and a major NC textile company. In February, a court in Delaware refused to endorse a proposal for Warren Buffett's Berkshire Hathaway Inc. to buy Greensboro-based Burlington Industries Inc. out of bankruptcy. Berkshire pulled out, and Burlington wound up fetching a higher price at an auction held last month. Pillowtex, Burlington and the rest of the U.S. textile industry have been burdened by inexpensive imports, high domestic production costs and a soft economy. The industry, centered in the Carolinas, helped build scores of towns and cities in the two states. But now those jobs--as well as jobs in mainstays such as furniture and tobacco--are disappearing, and local economies are struggling to develop substitutes. In court, Pillowtex's lawyers said GGST insisted on the break-up fee as part of the deal, and they said the deal would establish a minimum price to be paid for Pillowtex. "We would like to have a target for people to shoot for," said Michael Wiles, a New York lawyer representing Pillowtex. Wiles set the pace for most of the hearing, occasionally rotating with lawyers from constituencies such as a creditors, suppliers, Broome & Wellington and UNITE, the workers' union. Walsh mostly listened, rubbing his index finger on his upper lip, before asking a question or making a tart observation. At one point, the judge told Wiles, "I think you have a lot of work to do." Except for the big issue of the GGST sale, Walsh ruled mostly in Pillowtex's favor, approving ways to sell minor assets and secure money from the sale of inventory. Mike Harmon, Pillowtex's president and chief financial officer, sat in the courtroom's front row, replying once to a question posed by Pillowtex lawyers. Asked in an interview after the hearing how Pillowtex's ups and downs had affected him, Harmon said, "It's been a very difficult time. The worst part is the effect on the employees. The industry, if you look at it, is going through serious difficulties. For whatever reason, it impacted us more."

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