Fruit of the Loom Files for Chapter 11

From Times Wire Services

Fruit of the Loom Ltd. on Wednesday filed for Chapter 11 bankruptcy protection after the largest U.S. maker of underwear and T-shirts failed to cut costs in time to recover from several quarters of losses.

The Chicago-based company with 40,000 employees worldwide has lined up $625 million in financing through Bank of America, subject to court approval, to enable it to continue operating, spokesman Joel Weiden said.

Fruit of the Loom and 33 of its units filed for protection from creditors in U.S. Bankruptcy Court in Wilmington, Del., according to electronic court dockets. The company listed $258.3 million in assets and $72.3 million in debt in its petition.

Fruit of the Loom, saddled with about $1.3 billion in debt, will have its fifth straight loss this quarter after it ran into trouble moving production overseas to cut costs. In October, its lenders agreed to waive financial covenants through Jan. 31. However, in a regulatory filing last month, the company said it may have further losses from problems keeping track of inventory.

"They owe a ton of money," said analyst Dennis Rosenberg of Credit Suisse First Boston, who rates Fruit of the Loom a "hold." "It was expected."

Fruit of the Loom, which dates to 1851, makes its namesake, BVD, Gitano and Wilson-brand clothing. The company said it has no immediate plans to cut jobs, and its foreign subsidiaries aren't part of the filing.

Trading in Fruit of the Loom shares on the New York Stock Exchange was halted earlier Wednesday pending the announcement of the bankruptcy filing.

The shares last traded at $1.25 on Tuesday. Fruit of the Loom rose to a 52-week high of $19 in January, and fell to a low of $1 two weeks ago.

Fruit of the Loom struggled to slash expenses in the face of growing competition from companies such as Russell Corp. and Sara Lee Corp.'s Hanes unit that moved manufacturing to less expensive facilities outside the U.S., analysts said.

"They were the last of the major knitwear manufacturers to adapt," said Ethan Schwartz, a bond analyst at Credit Research and Trading Corp.

The company's financial problems were underscored by a steep, third-quarter loss of $166.4 million, compared with net earnings of $50.4 million a year earlier. The company predicted at the time that its troubles would continue into the fourth quarter.

Fruit of the Loom in July reported a second-quarter $2.3-million loss as sales dropped 12% from a year earlier. Moody's Investors Service had earlier downgraded the company's debt ratings, pointing to declining sales and earnings performance, a weak balance sheet, and production and distribution woes.

The company has closed many of its U.S. textile operations this year, shifting them and thousands of jobs to cheaper plants in Mexico, Central America and the Caribbean.

In addition, it has transferred its financial base from Chicago to the Cayman Islands.

Associated Press and Bloomberg News were used in compiling this report.

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