Delta Woodside, Delta Mills file Chapter 11 bankruptcy, plan to sell substantially all assets

By Caroline Salls

Pittsburgh, Oct. 13 - Delta Woodside Industries, Inc. and wholly owned subsidiary Delta Mills, Inc. filed for Chapter 11 bankruptcy on Friday in the U.S. Bankruptcy Court for the District of Delaware.

According to a Delta Woodside news release, the companies intend to start the process for a sale of substantially all of their assets and a wind-down of their operations.

As part of an orderly wind-down process, Delta Mills said it intends to fill most existing orders from its customers and to continue to operate its Beattie plant for a period of several weeks and its Delta 3 finishing plant for a longer period.

Before the bankruptcy filing, the companies said they were negotiating a potential sale of a majority of their assets; however, the parties were unable to agree on terms that the boards of directors believed were in the best interest of the companies and their creditors, and negotiations were terminated shortly before the bankruptcy filing, according to the release.

DIP details

According to an 8-K filing with the Securities and Exchange Commission, Delta Mills expects to enter into a ratification and amendment agreement with GMAC Commercial Finance LLC in connection with the bankruptcy to amend Delta Mills' existing revolving credit facility and factoring arrangements with GMAC to provide debtor-in-possession financing to Delta Mills and continued factoring of Delta Mills' accounts receivable.

Under the amended Delta Mills' credit facility, GMAC would make advances and issue letters of credit up to the lesser of $20 million or the existing borrowing base calculation, with a floating interest rate.

The borrowing base would be subject to a $3 million availability block.

According to the DIP motion, the current availability block is $7 million, but that block will be reduced to $3 million upon entry of the interim financing order, making an additional $4 million available to the company.

Delta Mills will pay a $400,000 facility fee.

In addition, Delta Woodside's directors approved on Oct. 5 the elimination of the Delta Woodside stock component of the company's director compensation plan, under which directors who are not employees of Delta Woodside were previously entitled to annual director compensation in the form of both cash and Delta Woodside stock.

Delta Woodside said it will request a no-action relief from the Securities and Exchange Commission to allow it to modify its reporting obligations to stop filing quarterly and annual reports, including its 10-K annual report for the fiscal year ended July 1, and to instead file the financial reports with the SEC under cover of a 8-K current report.

As a result of Delta Mills' bankruptcy filing, all of Delta Mills' outstanding 9 5/8% senior notes due 2007 became immediately due and payable under the terms of the indenture governing the notes.

Additional defaults also exist under the indenture, including a default resulting from the company's failure to make the $1.49 million interest payment on the notes that was due on Sept. 1 and its failure to file its 10-K report.

Currently, $30.94 million in principal amount of the senior notes are outstanding, and Delta Mills has no reasonable prospects of satisfying them at maturity on Sept. 1, 2007.

Also, without the ratification agreement, the terms of Delta Mills' credit facility with GMAC provide that all amounts outstanding under the credit facility will become immediately due and payable as a result of the bankruptcy filings. An event of default under the notes indenture would also trigger a default under the existing GMAC credit facility and factoring arrangement.

There is currently $18.53 million outstanding under the credit facility.

According to the 8-K report, the companies have experienced continued operating losses over the past several years, primarily because of continued pressure from foreign imports and overcapacity in the domestic textile business, combined with increasing energy, raw material and production costs.

According to court documents, Delta Mills has $70.37 million of assets and $60.48 million of debt.

Largest creditors

The companies' largest unsecured creditors include:

• Hedge Hog Capital, Riverside, Conn., with a $5 million claim;

• John Hancock, Boston, with a $4 million claim;

• Fort Washington, Cincinnati, with a $3 million claim;

• ALJ Capital, Los Angeles, with a $3 million claim;

• AIG, Los Angeles, with a $2 million claim;

• Flagg Street Capital, Cambridge, Mass., with a $2 million claim;

• Parkdale Mills, Inc., Gastonia, N.C., with a $1.5 million claim;

• Sun America AIG, Los Angeles, with a $1.25 million claim; and

• Dilan Investment Ltd., London, with a $1 million claim.

Delta Woodside, based in Greenville, S.C., manufactures and sells textile products for the apparel industry through Delta Mills. The Chapter 11 case number is 06-11144.

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