Bank's $20m loan guarantee falls $15m short of Feuerstein's request

By Ross Kerber, Globe Staff, 8/26/2003

The US Export-Import Bank yesterday voted to give Lawrence factory owner Aaron Feuerstein a $20 million financial guarantee, $15 million short of what he sought to help regain control of textile maker Malden Mills Industries Inc.

Feuerstein said he was satisfied with the preliminary decision. He received positive news yesterday when an important creditor, General Electric Co.'s corporate-finance unit, said it is willing to extend the deadline for him to retain the company on favorable terms for up to 30 days. The deadline was originally set for today.

But the Ex-Im Bank's decision could ruin those hopes and was a setback for politicians of both parties, who had lobbied to help Feuerstein in what he says is a mission to preserve the company's 1,200 jobs.

"I'm disappointed that the Export-Import Bank didn't fully recognize the importance of a company such as Malden Mills to our national and regional economy as well as to the nation's manufacturing base," said Senator Edward M. Kennedy in a statement yesterday.

The three-member board of the bank, which is charged with boosting US exports, agreed with a staff recommendation that $20 million was the largest amount of working capital it could guarantee to Malden Mills lenders, based on current orders for its brand-name Polartec fleece fabrics.

Ex-Im chairman Philip M. Merrill wasn't available for comment, but a statement issued by the bank said in part, "The amount of the approved preliminary commitment was related to the size of the company's export-related inventory and receivables."

Another board member, former New Hampshire Democratic gubernatorial candidate J. Joseph Grandmaison, said he was the only one on the board who was willing to guarantee more, based on collateral such as the company's real estate.

"I'm very disappointed and frustrated" by the board's decision, Grandmaison said. "I believe the request for $35 million was eminently justifiable."

Feuerstein's supporters hoped the board would take note of assets such as its Polartec trademark, previously valued at $90 million, to justify the higher amount.

In a telephone interview yesterday, Feuerstein said the ruling didn't end his ambitions for regaining control of the company and said the bank had left room for the company to reapply for an additional guarantee, which it will do.

"Anyone who has any sense in their heads thinks it's the first step toward good news," he said.

Feuerstein, 77, best known for rebuilding Malden Mills and paying idled workers after a 1995 fire, now controls just one of the company's seven board seats. He lost his title of chief executive as part of a deal approved this month to allow the company to emerge from Chapter 11 bankruptcy, but continues to serve as chairman. Creditors, including General Electric Co.'s corporate-finance arm, say it is too soon to discuss how new managers might act, although a search firm is interviewing candidates to become the company's new chief executive.

Under the reorganization plan negotiated with creditors, production in Lawrence is projected to fall to 13.5 million yards in 2005 from 16.5 million this year, while production of Polartec in Germany and at a new plant in Asia is expected to increase.

Feuerstein aims to maintain production in Lawrence. His request to the Ex-Im Bank was first spelled out in a court document showing the terms under which Feuerstein had the right to buy back control of the company for $92 million as it emerges from bankruptcy. The amount was scheduled to increase to $124 million after today. But Richard Jones, a spokesman for GE, the lead creditor in the case, said, "The banks have authorized GE as agent to agree to an extension of the first option period for up to 30 days."

Andrew Schwartz, a Foley Hoag attorney representing unsecured creditors in the case, said his clients may not have the power to extend the deadline -- but added that the reconstituted company might still accept such a bid.

"The key difference is that after Aug. 26 it would the seller's choice, not the buyer's," he said.

Changes would likely have to be approved by a bankruptcy judge. In addition, the effective date of the company's emergence from bankruptcy will probably be extended to Sept. 10 from today, said people on all sides of the case.

Feuerstein had initially requested $65 million in what are known as "working capital guarantees," which he said were necessary to persuade other lenders to back his effort.

The figure was reduced to $50 million during a formal review process, and last week a spokesman for Feuerstein said that "anything less than a $35 million guarantee from the Ex-Im Bank will crush our ability to exercise the buyback option."

Various Massachusetts politicians backed his bid, as did both Republican senators from New Hampshire, where 500 of the company's 1,200 employees live.

"An Export-Import Bank guarantee is a critical part of the financial package which Malden Mills has assembled," New Hampshire Senator Judd Gregg wrote on Aug. 7 to Merrill, the Ex-Im Bank chairman, in support of Feuerstein's application.

Ross Kerber can be reached at kerber@globe.com.