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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.


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."

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.

"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.

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."

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