OP here. Thanks for all the replies guys. Clearly, winding over loose line caused the loop and hence the birds nest when I pulled off line to clear it. That said, when I pulled line off the spool, it quickly twisted and tangled; that was ridiculous. I pulled off all of that new line and discarded it. I bought another spool of line and wound it on the way I learned as a kid: Fed line through the eyes of the rod onto the reel. Ran the line through a phone book to create tension, set the spool of new line flat on the table and reeled it in while the new spool turned as the line came off. The new spool of line went on nice and tight and didn’t twist up when I pulled off some line and let it slack.
On another note, I was able to repair the old Penn “greenie”. I was about to toss it out but miraculously found a replacement bail spring! All good. Thanks again.
Happy fishing.