Foamex Details Reorganization Plan

Unusual plan pays creditors cash, not stock, and shares held by existing stockholders retain their value.
Stephen TaubOctober 24, 2006

Foamex International plans to shell out at least $665 million in cash to creditors when it emerges from bankruptcy, as early as the first quarter of 2007, according to the Associated Press. About $312.5 million is earmarked for holders of senior secured notes, and $208.1 million for holders of senior subordinated notes, according to the report.

The cash payments are unusual. Generally, creditors receive new stock—which sometimes has questionable value or liquidity—when a company exits bankruptcy. What’s more, under the reorganization plan shares held by existing stockholders retain their value, instead of being wiped out. This is because business for the maker of foam products has been very strong since it filed for Chapter 11 in September 2005.

Foamex’s new plan says that the company must come up with about $130.3 million to pay off its debtor-in-possession loans, which financed the company while in bankruptcy, noted the AP. Earlier this month, Foamex said it will draw down $645 million in new equity as part of a plan to emerge from bankruptcy. Altogether, Foamex has received a commitment from a group of lenders led by Bank of America, N.A. and Banc of America Securities for up to $790 million of exit financing.

As part of the new equity investment, Foamex also will conduct a $150 million rights offering to existing common and preferred shareholders. Five existing shareholders—D. E. Shaw Laminar Portfolios, Goldman, Sachs, Par IV Master Fund, Sunrise Partners, and Sigma Capital Associates— have committed to fund any shortfall between $150 million and the actual rights offering proceeds through the purchase of new preferred or common stock in reorganized Foamex International.