Foamex files Ch. 11, aims to convert debt to equity
By Furniture Today Staff -- Furniture Today, October 10, 2005
Linwood, Pa. — Foamex, the largest supplier of foam for upholstered furniture and bedding, has filed for Chapter 11 bankruptcy protection, aiming to convert much of its outstanding debt into equity.
The company, which said a month ago it might seek Chapter 11 to restructure its balance sheet, said it had agreed in principle with a committee of bondholders to convert $523 million in bond debt to equity.
Foamex also is seeking court approval for $240 million in debtor-in-possession financing through the Bank of America, which will allow it to continue operations and pay critical suppliers and employees. The company said the bank also has committed to provide it with financing when it exits Chapter 11.
"We believe this plan represents the best opportunity for Foamex to restructure its debt in an effective and timely manner," said President and CEO Tom Chorman. "The Chapter 11 process will allow Foamex to gain immediate liquidity and continue operating without interruption, while giving us the opportunity we need to restructure our balance sheet, strengthen our business performance and create long-term value."
Eliminating the bond debt would reduce annual interest expense by $54 million, the company said.
Foamex, which filed in U.S. Bankruptcy Court in Delaware, said it expects day-to-day operations will continue without interruption. The filing applied to Foamex and certain subsidiaries, but not the company's foreign operations.
If unsecured creditors and bondholders vote to accept the reorganization plan, unsecured creditors whose claims aren't paid would receive warrants to purchase between 5% and 10% of the equity in the company, Foamex said. Current equity holders would receive nothing.
Effective Sept. 28, Foamex will be delisted from the Nasdaq stock exchange.
