Foamex noteholders object to equity commitment, rights offering

By Caroline Salls

Pittsburgh, Oct. 26 - Foamex International Inc.'s ad hoc committee of senior secured noteholders objected to the company's request to enter into debt and equity financing commitment letters and to launch a related rights offering, according to a Thursday filing with the U.S. Bankruptcy Court for the District of Delaware.

According to the objection, instead of identifying equity financing on terms more favorable to the company, its creditors and its equity security holders, the company has negotiated exclusively with its significant equityholders since June 8.

The committee said the result of those exclusive negotiations is an equity commitment that has Foamex paying the significant equityholders, who already own 100% of the company's preferred stock and more than 50% of its common stock, up to $9.5 million in fees to backstop a $150 million rights offering.

In addition, the committee said, the significant equityholders were already highly motivated to provide the equity financing and subscribe to a rights offering in order to avoid dilution to their interests that would result from a third-party investment or conversion of existing debt to equity under a plan of reorganization.

The committee also said the structure and terms of the equity commitment show a substantial risk that a termination event will occur and that Foamex's estates and creditors will be left with the burden of all the fees and expenses under the commitment letters.

The committee said the fee and expense payments will likely exceed $16 million, "with nothing to show for it." These expenses include a $9.5 million put option premium and other fees and expenses payable to the significant equityholders and lenders.

A hearing on the commitment letters is scheduled for Oct. 30.

Foamex, a Linwood, Pa., manufacturer and distributor of flexible polyurethane and advanced polymer foam products, filed for Chapter 11 on Sept. 19, 2005. Its case number is 05-12685.

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