As anticipated for weeks, Guilford Mills (www.guildord.mills.com) will voluntarily apply "in a few weeks" for Chapter 11 bankruptcy protection as pre-arranged in a restructuring plan.
The Greensboro-based upholstery fabric and textile manufacturer said it reached an agreement with its senior lenders, led by Wachovia, on reducing its $270 million debt. On Feb. 19 it received a six-week extension on its loan from its lenders.
The pre-arranged bankruptcy plan, which requires U.S. Bankruptcy Court approval, will give the key lenders a 90 percent equity stake in Guilford Mills shares.
Guilford Mills also follows in the bankruptcy protection efforts of textile manufacturers Burlington Industries and Pillowtex. If Guilford Mills emerges from bankruptcy as planned this summer, it will have a completely different look, product offering and ownership.
But John Emrich, the company's president and chief executive officer, stressed that the company's management will not close any plants or undertake significant layoffs related to the bankruptcy announcement.
"We do not expect any further reduction in plants or work force related to the bankruptcy filing," Emrich said. "There have been a lot of rumors about the fate of the company, so we hope today's announcement will provide a sense of relief to our employers, our customers and our company about our future. We believe this will be a quick in and out of bankruptcy because of the confidence our senior lenders have shown to our business plan."
In exchange for reducing Guilford Mills' debt from $270 million to $145 million, its key lenders would take a 90 percent equity ownership stake. Existing shareholders would own the other 10 percent. Under the plan, the company's unsecured trade creditors would be paid in full.
The company's board of directors would be reconfigured to reflect the new equity ownership, led by Wachovia. Once the plan is federally approved, the new board would have a one-year veto on the sale of any assets or business transactions.
As part of the pre-arranged bankruptcy filing, Guilford Mills' lenders will provide an approximately $30 million debtor-in-possession revolving credit facility.