Collins & Aikman requests court OK to wind down fabrics business

By Caroline Salls

Pittsburgh, May 18 - Collins & Aikman Corp. requested court approval to wind down its fabrics business, according to a Wednesday filing with the U.S. Bankruptcy Court for the Eastern District of Michigan.

As a result of projected negative cash flow over the next few years and changes in the automotive fabrics business, the company was unable to sell the business, and decided to wind it down to reduce costs and increase the profitability and efficiency of its remaining operations.

In connection with the wind-down, the company will provide salaried fabrics business employees with severance benefits of either 25%, 15% or 10% of base salary, as well as continued medical benefits for 12 weeks.

Hourly employees will receive severance benefits of two weeks of base salary, retention benefits of one week of base salary and continued medical benefits for 12 weeks.

Discretionary payments for fabrics business employees will be $300,000 if the net proceeds from the liquidation of the business are at least $17.5 million, $500,000 if the net proceeds from the liquidation are at least $20 million and $750,000 if the net proceeds from the liquidation are at least $22.5 million.

The company said it is negotiating any related amendments or waivers required under its debtor-in-possession financing facility.

Collins & Aikman has agreed, in the meantime, that it will establish a segregated account that will equal the net proceeds of the wind-down.

After substantial completion of the wind-down, but not later than Aug. 31, the company will permanently repay the loans under the DIP agreement to the extent the balance in the segregated account exceeds $10 million for the period of Aug. 31 to Sept. 29; $5 million for the period of Sept. 30 through Dec. 31, 2006; and $0 thereafter.

A hearing is scheduled for June 1.

Collins & Aikman, a Troy, Mich.-based automotive company, filed for Chapter 11 on May 17, 2005. The case number is 05-55927.

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