Constar International Inc. has filed for Chapter 11 protection as part of a plan to reduce its debt by $175 million and reduce its annual interest costs by about $19 million.
The Philadelphia-based PET bottle maker filed Dec. 30 in U.S. Bankruptcy Court in Wilmington, Del. Constar expects the reorganization to be completed by early spring.
In a Dec. 30 news release, the company said all of its manufacturing and distribution facilities in the U.S. and Europe will operate on normal schedules and the company expects to fill customer orders.
``We intend to pay all of our obligations in full — which includes providing pay and benefits to our employees as usual, honoring all contracts, and paying suppliers in full,'' President and Chief Executive Officer Michael Hoffman said in the release.
Under the Chapter 11 plan, holders of Constar subordinated notes will convert the full face value and the interest that was due Dec. 1, which will not be paid, into common stock of the reorganized company. In the release, an official of Solus Alternative Asset Management LP of New York — the largest holder of the notes — said his firm supports the plan.
``We look forward to working with Constar to consummate the debt-for-equity exchange promptly to allow the company to maximize its potential prospects going forward,'' Solus Chief Investment Officer Christopher Pucillo said.
Constar said it has bank commitments for debtor-in-possession and exit financing of $75 million to aid the reorganization. The $75 million exit financing facility provides for committed financing for three years following the closing of the DIP financing.
The company's financial advisor is Greenhill & Co. Inc. of New York and its legal advisers are Wilmer Cutler Pickering Hale and Dorr LLP of Washington and Bayard P.A. of Wilmington, Del.
Constar employs 2,150 at 14 plants in the United States and two European facilities. Since being spun off in 2002 by Crown Cork & Seal Co. Inc. as a publicly traded company, Constar has gone through several plant closings and layoffs as it struggled to cope with resin, power and transportation costs increases, as well as a decline in bottled soft drink sales.
In October, Constar and PepsiCo Inc. — which provides nearly 40 percent of Constar's business — signed a new four-year agreement effective Jan. 1, 2009. Constar officials have said the new contract would result in 30 percent lower sales, but said that would be offset by cost savings resulting from a series of 2008 plant closings and layoffs.
According to Securities and Exchange Commission filings, for the nine months ended Sept. 30, Constar reported a loss of $26.8 million on net sales of $687.8 million. The firm reported a full-year 2007 loss of $26.3 million on sales of $881.6 million. In 2006, Constar showed a loss of $10.3 million on sales of $927 million.