Chattanooga, Tenn.—Propex, one of the world’s largest producers of carpet backing, filed for protection under Chapter 11 in U.S. Bankruptcy Court for the Eastern District of Tennessee. A story by the Associated Press (AP) stated the move makes the supplier “the latest casualty of the slump in the U.S. housing market and the global credit crunch.”

Among Propex’ branded carpet backings are Actionbac and Polybac.

The company said the filing was done to right-size its balance sheet and that it will continue to operate its facilities and offices in the ordinary course of business while it restructures. The filing impacts Propex’ U.S. operations only, not its Latin American and European operations.

“During the past year,” said Joe Dana, president, “our entire industry has been hit hard by the general economic decline led by the deteriorating housing market plus the escalating cost of raw materials. Today’s steps are part of an important process to strengthen Propex.”

To ensure continuation of its ordinary business operations the company also filed for Bankruptcy Court approval of various First-Day Motions including the approval of a $60 million credit facility it has arranged. Propex said the money will provide it with “immediate and sufficient liquidity” to operate its business on an ongoing basis.

“The new financing will provide $60 million in immediate liquidity.” Dana noted, “With this cash infusion, the company can focus on servicing its customers and improving operations.”

Propex listed total assets of $585.7 million and debt of $527.4 million in its bankruptcy petition. Court papers said it defaulted on bank loans totaling $230 million and also owes its bondholders an additional $150 million. In the first nine months last year, its net revenue decreased $73.5 million, nearly 12.5%, to $517.8 million from $591.3 million in the corresponding period of 2006.

Mac Bridger, Propex’s executive vice president, told the AP the company is operationally strong but “was extremely heavily leveraged” as the result of acquisitions over the years. “The only issue we have here is too much debt,” explaining the filing “is a strategic move on the company’s part to cleanse its balance sheet. “That’s it, pure and simple.

“We’ve been trying for the last quarter to refinance the business,” but that proved impossible given the global credit crisis brought on by the subprime mortgage meltdown.

Dana said upon completion, the Chapter 11 restructuring is expected to reduce debt and create additional cash flow that otherwise would be earmarked for debt service. “We believe the financial reorganization will allow us to implement a restructuring plan that will lower our debt levels and expand our market leadership in key sectors from a position of financial strength.”

For more information, call Propex at 423.855.1466.