Foamex files prepackaged Chapter 11 bankruptcy, requests OK for $320 million in DIP financing

By Caroline Salls

Pittsburgh, Sept. 19 - Foamex International Inc. filed for Chapter 11 bankruptcy Monday in the U.S. Bankruptcy Court for the District of Delaware and has reached an agreement in principle with members of an ad hoc committee of holders of a majority of its senior secured notes on the key terms of a proposed reorganization plan, according to a company news release.

According to court documents, the bankruptcy filing was a result of "a steady and dramatic decline" in operating performance since 2001, a significant increase in the price of primary raw materials, the severe downturn in the U.S. automotive industry and its heavy debt load, coupled with a lack of capital investment.

The agreement in principle would provide for a significant deleveraging of the company's balance sheet and result in improvements to its capital structure and profitability.

Under the agreement in principle, the company would eliminate about $523 million of outstanding bond debt, which, in turn, would result in annual interest savings of $54 million.

Specifically, holders of Foamex's senior secured notes would convert their debt into 100% of the equity of the reorganized company.

If unsecured creditors and the holders of Foamex's senior subordinated notes vote to accept the reorganization plan, they will receive warrants to purchase between 5% and 10% of the equity of the reorganized company, depending on the ultimate allowed amount of general unsecured claims.

Under the agreement in principle, there would be no recovery for holders of equity interests.

The company has $620.83 million in assets and $744.76 million in debt, including $139.47 million in revolving loan debt, $32.86 million in term loan debt, $300 million of 10¾% senior secured notes, $150 million of 9 7/8% senior subordinated notes due June 15, 2007, $51.6 million of 13½% senior subordinated notes due Aug. 15, 15,000 shares of preferred stock outstanding and 24.51 million shares of stock, the court documents said.

The company's top 10 unsecured creditors include:

* U.S. Bank, NA as indenture trustee for the company's 10¾% senior secured notes and two-tranche senior subordinated notes, with a $300 million claim;

* Bank of New York as indenture trustee for the company's senior subordinated notes, with a $200.09 million claim;

* Dow Chemical of Midland, Mich., with a $20.51 million trade debt claim;

* Lyondell Chemical Worldwide of Houston with a $16.62 million contract claim;

* Bayer Corp. of Pittsburgh with a $14.05 million contract claim;

* Shell Chemical Co. of Houston with a $7.53 million contract claim;

* BASF Corp. of Wyandotte, Mich., with a $4.03 million trade claim;

* Huntsman Polyurethanes of The Woodlands, Texas, with a $2.72 million contract claim;

* Milliken & Co. of Spartanburg, S.C., with a $1.26 million trade claim; and

* American Express Travel Related Services Co., Inc. of Phoenix with a $1.2 million contract claim.

DIP financing terms

In conjunction with its filing, Foamex is seeking court approval of up to $240 million in revolving credit debtor-in-possession financing from agent Bank of America, NA and $80 million in term loan DIP financing from Silver Point Finance, LLC.

The term loan DIP will be used to repay the company's $80 million pre-bankruptcy term loan in exchange for the return of $1.03 million in fees paid previously under the pre-bankruptcy term loan.

The revolving DIP includes a $40 million sublimit for letters of credit.

Maturity on both is the earlier of 18 months after the closing date or upon confirmation of a Chapter 11 plan of reorganization.

Interest on the revolving DIP will be Libor plus 250 basis points. Interest on the term loan portion will be Libor plus 1,000 bps plus a 75 bps add-on if trailing 12-month EBITDA is less than $58 million at the beginning of the fiscal quarter ending Jan. 1, 2006. The term loan has a Libor floor of 300 basis points.

The proposed revolving DIP, combined with the company's cash flow from operations, is expected to provide it with sufficient liquidity to meet its post-bankruptcy operating expenses, as well as to pay pre-bankruptcy debt obligations, the release said.

Foamex has also received a commitment from Bank of America for exit financing.

"We expect to emerge from this process as quickly as possible with a more appropriate capital structure that will allow us to be a healthier, more competitive company," president and chief executive officer Tom Chorman said in the release.

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

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