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A Major Deal Maker of the ‘80s Is Drowning in Debt in the ‘90s : Finance: William F. Farley’s hot streak has cooled along with junk bonds. And his plans for West Point-Pepperell have stalled.

WASHINGTON POST

Down in West Point, Ga., the townsfolk are wondering what ever happened to the Bill Farley who strutted up and down their streets, pumped their hands and convinced them that he would watch over West Point-Pepperell Inc., the community’s pride and joy.

“When he comes to town, the women swoon over him,” said Terrell Whaley, manager of WCJM radio in West Point, where he has been putting town news out on the airways and over the grapevine for 30 years. “They say he looks like a movie star.”

But now, a year after Chicago industrialist William F. Farley took control of the local textile manufacturer, his complex corporate network is drowning in debt. Farley has still not been able to complete his takeover of Pepperell, and his star is fading in the Georgia and Alabama towns that grew up around a cluster of Pepperell mills.

People in West Point don’t see much of Farley these days, and when he does drop by Pepperell, the rumor mill races. Whaley said Farley was sighted in the local Wal-Mart last week. A shopper rushed up to him, shook his hand and asked him for a job. As the story goes around town, Farley said with a laugh, “I may need one before too long.”

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Whaley calls Farley’s plight “being up to your behind in alligators.” Others view Farley’s predicament as a symbol of the financial excesses of the 1980s that came to a quick end this year with the collapse of junk bond marketer Drexel Burnham Lambert Inc., the architect of several of Farley’s major deals.

Starting with a $25,000 down payment in 1976, Farley became one of the bright stars of the past decade’s takeover wave, building a smorgasbord of companies that has included underwear maker Fruit of the Loom Inc., and manufacturers of car batteries and fasteners and automotive die castings.

“Farley is a creature of the times,” said James Grant, editor of Grant’s Interest Rate Observer, a financial publication that was skeptical of the Pepperell deal early on. “As a champion debtor, he was an exemplar of the boom, and he is a specimen of the decline.”

Now, at 47, Farley has most everything that matters to him at risk: his controlling stake in Fruit of the Loom, his relationship with lenders and investors, and his public reputation, which he once hoped would carry him into the White House.

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“Down here in the South, we have never understood highly leveraged situations,” said Scott Huguley, president of First National Bank in downtown West Point. “It’s not in our general course of business.”

Not so for Farley. Debt was a way of life for him long before leveraged buyouts and assets sales became the way to do big deals.

His first acquisition 14 years ago was done mostly with borrowed money, but his biggest plunge came with his $2.5-billion hostile takeover of Pepperell, the nation’s largest publicly held textile company. He jolted he locals last year when he ousted Pepperell Chairman Joseph Lanier Jr., whose paternalistic family had run the company for generations.

Farley was disdainful at the time of doubters and told a home furnishings publication: “I think one of the things that puzzles them is how I am going to modernize and expand with all that debt. I think that puzzles people beyond their comfort zones. But just take a look at Fruit.”

Now, Farley is in the thick of negotiations with banks and bondholders that are owed $1.5 billion by a Farley subsidiary set up to acquire the textile company. Pepperell itself carries a substantial debt load from its takeover of J. P. Stevens & Co., though it is not impaired by Farley’s other troubles, according to financial analysts.

Farley also needs to complete the buyout of Pepperell to tap the company’s cash to meet loan and interest payments. The cost of buying the remaining 5% of the company at $58 a share--the price Farley paid for the rest of the company--is $83 million.

Farley was depending on Drexel to raise enough money to complete the acquisition, but the collapse of Drexel and the junk bond market overtook that plan. Selling off parts of Pepperell also has not proceeded as planned.

Ultimately, banks and bondholders will decide Farley’s fate. Among the possibilities are bankruptcy, or a restructuring that could include a severely diminished role for him at Pepperell. Another is that he would have to sell some of his stake in Fruit of the Loom.

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One plan that Farley reportedly has floated is for holders of certain bonds and preferred stock to take a 65% equity interest in a new company called West Point Holdings in exchange for deferred and lowered interest rate payments.

A spokeswoman for Kidder Peabody & Co., the firm that bondholders have hired to represent them, had no comment on the negotiations. George Fasel, a spokesman for Bankers Trust Co., one of the banks involved in the loan end of the transaction, said: “The banks, bondholders and Farley people are chewing it over.”

Some analysts believe that Farley’s optimistic nature and appetite for risk may have led him down this road. Others assume his ego got the best of him and his better business judgment, leading him to overestimate the market for selling off pieces of Pepperell, to fail to foresee the collapse of the junk bond market and to overpay for the company.

“Farley is different from you and me,” Grant said. “He is a man who was not content with a fair number of millions of dollars. It makes him different and somewhat appealing. He was trying to build something.”

“Maybe believing he could do too much is his tragic flaw,” said Angela Uttaro, an analyst with Standard & Poor’s Corp., which lowered the ratings last February on $1.14 billion worth of a mixture of Farley debt issues.

But close friends and associates of Farley don’t underestimate his ability to pull a rabbit out of the hat. Because of his considerable charm, he always has had a large cheering section. Those who have watched him in action most often characterize him as smart, aggressive, charismatic and persuasive when it comes to getting his way.

“This guy runs at 100 miles per hour,” said one former business acquaintance. “I wouldn’t count him out. And if he is knocked out on this one, he’ll be back in the ring in a month.”

Those who knew him when he was a scholarship student and athlete at Bowdoin College in Maine studying government also have faith in him.

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“Knowing Billy, it’s something he will come out of,” said his football coach at Bowdoin, Sid Watson. “It doesn’t seem to affect him. He can borrow $600 million and still sleep at night.”

Borrowing heavily but blithely is a skill Farley acquired early on. The son of a Pawtucket, R.I., mail carrier, Farley dreamed about being rich as a young man and set tough goals for himself.

“It was clear from the first that Bill had a vision of where he wanted to be a ways down the road--far more than other people,” said Ilan Kaufthal, who worked with Farley early in his career and now is managing director of mergers and acquisitions at Wertheim Schroder & Co., an investment banking firm. “He had a longer view of what he wanted to be.”

Once Farley finished Boston College Law School and hit the road to sell encyclopedias door-to-door, his appetite for deals was whetted when he went to work for the mergers and acquisitions department of NL Industries in New York. Soon after, he went to Lehman Bros. in Chicago where he bought his first company, Anaheim Citrus, from his old employer for $1.7 million. He put in $25,000 and borrowed the rest, the first indication that he could live with extremely high debt-to-equity ratios.

After a near bankruptcy with Baumfolder Inc. and failed purchase of Condec, a small defense contractor, Farley finally became a player with the buyout of Northwest Industries, a Chicago-based conglomerate that owned Fruit of the Loom.

Farley concentrated on skivvies, turning Fruit of the Loom into a leading producer of underwear and sports clothing. He invested heavily in the company’s plants and marketing. He boosted sales, employment and profits and held the success story up as proof that the same could be done for Pepperell, a company that already was prospering.

He came to love the spotlight. He appeared in Fruit of the Loom commercials, showing off his well-toned body. He invested millions of dollars in ads that emphasized quality and American competitiveness. He spoke to the Georgia Legislature after he bagged the Pepperell deal and was squired around town by West Point’s mayor.

He talked to anyone who would listen, developed a taste for the finer things in life such as vacation homes and corporate jets, and preached wellness to his employees, who could pump iron or run a few laps at lunch in athletic facilities that Farley put in his plants.

West Point residents learned quickly that Farley is picky about his diet and careful about his waistline. During a stop to the local frozen yogurt shop, he refused to have a milkshake made with whole milk. He sent his chauffeur to the Win-Dixie supermarket nearby to buy some skim milk for the shake.

Now a deathly silence has fallen over Farley.

Interviews have been cut off, the company switchboard operator screens calls for him, and the public relations department does not return phone calls. Neither company officials nor Farley would comment for this article.

Always known as a man with political aspirations, Farley closed his Washington office last week. His longtime loyalist and right-hand man, Jack Albertine, resigned from the company to start a consulting firm of his own with his brother, James, and another former business associate.

Financial analysts who have been scrutinizing Farley’s balance sheets think bankruptcy can be avoided and that he may even hold the keys to the store, as one source in the Chicago financial community observed. Bankruptcy would be expensive for everyone and make a big loser of the banks and bondholders involved in the Pepperell deal.

Whatever shape the restructuring takes, almost everyone agrees Farley will have to be ready for big givebacks and concessions. Said Standard & Poor’s Uttaro, “He needs to buy a few miracles.”


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