Flexible polyurethane maker Foamex International Inc. has entered Chapter 11 bankruptcy protection as part of a restructuring plan that will trade $523 million in debt for equity.
The Linwood, Pa.-based firm filed for protection Sept. 19 in U.S. Bankruptcy Court in Wilmington, Del., claiming more than $744.7 million in debt and $620.8 million in assets.
The majority of Foamex's secured creditors have agreed to take partial ownership of the company in exchange for their debt - a move that should allow the company to restructure its finances and emerge quickly from bankruptcy.
``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,'' Chief Executive Officer and President Tom Chorman said in a news release.
If the plan is approved, unsecured creditors also will be able to receive partial equity in Foamex.
The company moved quickly to reassure customers, suppliers and employers that it will continue normal operations. It already has received court approval for more than $200 million in debtor-in-possession financing for day-to-day costs.
``Please be assured we expect to have the resources to pay you in full for all goods and services received and new orders made after the Chapter 11 filing,'' the company said in a notice to suppliers on its Web site.
Foamex is the leading producer of flexible foam used in auto trim, carpets and furniture, with nearly $1.3 billion in sales for 2004, but it registered a loss from continuing operations of $105.9 million last year and a loss of $21.5 million in 2003. It posted a profit of $60.9 million in 2002, but lost $5.6 million the previous year.
Its foam products business, which includes sales for bedding and furniture, is its biggest division, accounting for sales of $551.4 million last year.
Automotive is its second-largest group, with $351 million in sales for 2004. Auto supplier Johnson Controls Inc. is its largest single customer, making up 12.5 percent of total sales.
Foamex saw its auto sales fall by $96 million in 2004 because of slowing vehicle production in North America.
In addition, it faces increasing raw material prices, and could not pass along its higher costs quickly enough to make up for the gap, said Standard & Poor's credit analyst George Williams.
Foamex missed a $51.6 million loan payment Aug. 15, and executives noted at that time that reorganization under Chapter 11 was a possibility.
The firm listed U.S. Bank National Association as its largest unsecured creditor, with $300 million in senior secured notes. Bank of New York had another $200 million in senior subordinated notes.
Raw material suppliers including Dow Chemical Corp., Lyondell Chemical Co., Bayer Corp., Shell Chemical Co. and BASF Corp. also were among the largest unsecured creditors, with outstanding bills ranging from $4 million to $20 million.