Pillowtex sifts the options

By Don Hogsett -- Home Textiles Today, 11/13/2000 12:00:00 AM

DALLAS-Losing money, deeply in debt and assailed by banks, bondholders and creditors, all looking for money, embattled textiles giant Pillowtex Corp. is running out of options now that its banks have shut it off, and a possible bankruptcy filing is on the horizon.

Already reeling from the ouster of flamboyant ceo Chuck Hansen, the $1.6 billion textiles titan was painted into a corner when its bank lenders last week blocked a $6.3 million interest payment on a $125 million note, and then pushed the company into default on another $650 million in debt, forcing the company to mull Chapter 11.

Acknowledging its precarious position, Pillowtex issued a statement saying it is "considering strategic alternatives to address its financial problems." Then giving voice and form to speculation that has swept through the industry in recent weeks, the company said there are no guarantees that it can find a way out of its problems and may be "forced to seek protection from its creditors under the bankruptcy laws."

The news sent Pillowtex stock, already trashed by Wall Street over the past 18 months, down to penny-stock levels on Nov. 7, when the bad news came out. Pillowtex shares tumbled more than 54 percent in value to just 63 cents a share. The company's stock has nose-dived by 98.8 percent from its high of $52 a share in 1998, the result of a giddy, euphoric run-up after the company's high-stakes acquisition of a company twice its size, textiles giant Fieldcrest Cannon.

And that costly acquisition, along with a handful of other pricey buyouts, goes to the heart of the company's current woes: a crushing $1.4 billion debt load and interest costs that totaled more than $27 million in the third quarter alone. That's more than six times as much as the company's skimpy cash flow of just $4.5 million during the same three-month period.

Illustrating the corrosive power of takeover debt, Pillowtex is paying roughly $8 million in interest costs each year on its earlier acquisition of Leshner Corp., about twice as much as the $4 million in cash the business is throwing off in EBITDA (earnings before interest, taxes, depreciation and amortization).

Compounding the company's problems with interest expense and debt, Pillowtex's sales and profits are both under heavy pressure. During the recent third quarter, sales fell off at a steep double-digit pace, dropping by 14.0 percent, to $357.4 million from $415.8 million last year, a shortfall of $58.4 million. At the same time, Pillowtex recorded a loss of $16.3 million. The company's losses over the past 15 months now total more than $67.8 million.