Cone Mills equity committee battles for position, existence in proceedings

By Jeff Pines

Washington, Jan. 12 - Cone Mills Corp.'s equity committee is fighting for its life, protesting a motion from the unsecured creditors' committee that it be dissolved.

In fact, the equity committee contends that it alone is trying to find out what's really going on at Cone Mills, according to a filing with the U.S. Bankruptcy Court for the District of Delaware.

The creditors contend the equity committee is wasting the company's money. They described Cone Mills as "hopelessly insolvent."

When the textile company proposed selling its assets to W.L. Ross & Co. for $46 million, four independent directors unsuccessfully sought to have the company explore other alternatives to a sale, the equity committee noted.

In addition, they sought more details on the company's operations, but were stonewalled by management, the equity committee said. The independent directors, who suspected something wasn't right, asked the U.S. trustee to appoint an equity committee. The equity committee was appointed on Dec. 4 over the objections of the company and the creditors' committee.

The equity committee has tried to use its official status to get the same type information such as details of a possible restructuring, employment agreements with executives, whether assets are decreasing or increasing and any estimated post-petition net cash flows from the company without any success. Now the company is saying it will not provide any information until the official status of the equity committee is resolved.

Despite the company's alleged delaying tactics, the committee says it is launching an investigation into the proposed sale to W.L. Ross and has held discussions with an ad hoc committee of bondholders.

It further alleged the creditors' committee has done nothing to advance the interests of investors, and that the company's investment banker didn't consider any alternatives to the sale to W.L. Ross. In addition, it said it is working with its financial advisors and the ad hoc committee to find an alternative to the sale to W.L. Ross.

The legal grounds the committee uses to oppose its dissolution are: the U.S. trustee did not abuse its discretion in appointing the committee, and that the company has a significant number of equity investors whose interests would otherwise not be represented in any reorganization. Furthermore, the company never mentioned Chapter 11 in its August 10-Q, but in its November 10-Q, it reported negative equity of nearly $86.3 million.

"The debtors have failed to disclose the financial analysis that led to this unexpected (and unforeseen) swing in value," the equity committee said.

Cone Mills has about $51 million outstanding in bank debt, $21.5 million in secured notes and $100 million in senior debentures. The Greensboro, N.C.-based company filed for Chapter 11 on Sept. 24, 2003.

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