Bush Picks Nix Bailout For Famed Fleece Mill

1,200 Workers Face Layoffs

By Jeffrey Klineman

Published September 19, 2003, issue of September 19, 2003.
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Even as the White House promises to make the creation of manufacturing jobs a top priority, an independent government bank run by presidential appointees is refusing to guarantee a $35 million loan that could save a famed company with 1,200 employees in New England.

Legendary Malden Mills owner Aaron Feuerstein’s chances of regaining control of his company from creditors slipped after the federal agency, the Export-Import Bank of the United States, decided against guaranteeing a $35 million loan. The bank did offer a $20 million loan guarantee, but Feuerstein said it was insufficient to save the company, which manufactures Polartec synthetic fleece.

Feuerstein, the septuagenarian, third-generation owner of Malden Mills, rose to national prominence when the company’s main plant in Lawrence, Mass., burned down in December 1995. Citing his Orthodox Jewish values, he continued to pay employees until the factory was rebuilt.

Riding a wave of positive publicity highlighted by Feuerstein’s appearance during then-President Clinton’s 1996 State of the Union Address, Malden Mills thrived before economic difficulties forced it into bankruptcy in November 2001. Since then Feuerstein has sworn to regain control of the company in order to prevent its creditors from closing down its American operations.

Bipartisan political pressure on the bank has mounted in the wake of the decision against the $35 million loan guarantee. “Everyone’s looking at manufacturing jobs and this is a clear-cut case,” said Massachusetts Rep. Barney Frank, the ranking Democrat on the House Committee on Financial Services, which oversees the agency. “The bank actually can do something about it, and I think they need to. If it doesn’t, it could easily turn into a campaign issue.”

Frank and the Financial Services Committee’s Republican chairman, Ohio Rep. Michael Oxley, signed on to a letter excoriating the lender. The letter, co-signed by members of a subcommittee on international trade that also oversees the bank, insisted that the bank’s budget had been re-authorized for the purpose of helping smaller companies stay competitive against foreign manufacturing concerns and “preserving and promoting U.S. jobs.”

The letter stated: “It concerns us that the Bank would refuse financing for a medium-size exporter, the direct consequence of which would be a loss of manufacturing jobs in the United States.”

“People have been criticizing that bank for only helping big companies, while manufacturing jobs are slipping away here,” Frank said. “Frankly, it was just stupid of them to walk away from a local company that’s trying to save those kinds of jobs.”

The bipartisan support that the company received from the House committee echoes the efforts from the company’s home state, where Democratic Senators John Kerry and Edward Kennedy have been joined by Republican Governor Mitt Romney in lobbying the bank for a larger loan guarantee.

The bank is an independent federal government agency that helps finance the sale of American exports by providing loans, guarantees and export credit insurance. Its three voting board members were all appointed by President Bush. Only one of them, Democrat Joseph Grandmaison, supported the $35 million loan guarantee for Malden Mills, while the other two voted for the smaller financing package.

As Malden Mills prepared this week to emerge from two years of Chapter 11 bankruptcy protection, Feuerstein said that $35 million is the minimum amount required to finalize a $92 million financing package that would allow him to buy back the company from his creditors.

The Bank has agreed to re-hear Feuerstein’s case, but it is not clear if it will do so before the expiration on September 26 of a 30-day extension of an option to buy back control; if the extension expires, the price goes up from $92 million to more than $120 million, which could be out of Feuerstein’s reach. G.E. Commercial Finance, the majority lender, is on board with the extension, but not all of the unsecured creditors have agreed to the extension of the lower-cost buyback option, making the situation even more uncertain.

According to company spokesman David Costello, Malden Mills’s political support is due in part to its recent work for the military — work that was awarded to the company largely due to Feuerstein’s political capital.

“We’re delighted to receive such bipartisan support,” Costello said. “It shows the concern members of Congress have for manufacturing in general in the U.S., and Malden Mills is an example of a company that has continually exerted care for employees and community. But we’re also a critical supplier for the Department of Defense. Members of Congress want to ensure the U.S. maintains the ability to re-supply the armed forces domestically, and we’re the only company left in the U.S. who can make the kinds of technically advanced fabric products the U.S. has been buying for its soldiers.”

If Feuerstein fails to regain control of the company, he will still have access to a seat on the company’s board of directors, but he would own less than 5% of the company and have a largely ceremonial position.

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