Constar International Inc. has filed for its second Chapter 11 bankruptcy in three years as it continues a reorganization to emerge from debt.
In a Jan. 11 news release, the Philadelphia-based PET bottle, preform and closure manufacturer said it reached agreement with holders of more than 75 percent of the firm's $220 million in senior secured floating rate notes.
A subgroup of creditors will provide $55 million of debtor-in-possession financing to permit Constar to operate through the Chapter 11 reorganization, which was filed in U.S. Bankruptcy Court in Wilmington, Del.
Constar also has a commitment from Wells Fargo Capital Finance LLC for a working-capital facility that will come into existence upon its emergence from Chapter 11, expected to be early in the second quarter of 2011.
The restructuring plan calls for, among other things, a reduction of the firm's current debt level by $135 million to $150 million, with a significant corresponding reduction in cash interest.
Upon emergence from reorganization, we will carry new term debt of not more than $85 million and commensurately reduce annual cash interest obligations, President and CEO Grant Beard said in the release. This is noteworthy in that it frees up cash to reinvest in our business to support future growth.
We intend to continue to operate as usual during the restructuring process with minimal disruption to the business.
Under the plan, shareholders will receive nothing. Constar's creditors will convert the face amount of current notes into new term debt in the face amount of $70 million and convertible preferred stock of $30 million, and will become the majority owners of the new common stock. Constar's general unsecured claims will be converted to equity, and current equity will be canceled.
Constar's financial adviser is Greenhill & Co. and its legal adviser is Wilmer Cutler Pickering Hale and Dorr LLP.
Constar last filed for Chapter 11 protection Dec. 30, 2008, and emerged from that bankruptcy May 29, 2009.
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 cost increases, as well as a decline in bottled soft drink sales and beverage makers taking bottle production into their own hands.
On Sept. 14, Beard, a partner at private equity firm Anderson Group of Bloomfield Hills, Mich., was named Constar president and CEO.
The company in October announced the closings of its Orlando, Fla., and Kansas City, Kan., blow molding plants, as well as cuts in salaried staff.
For the third quarter of 2010, Constar reported a loss of $24.4 million on $146.8 million in sales, compared with losses of $10.2 million on sales of $158.6 million for the year-ago period.
Constar's quarterly report listed assets of about $325 million and total liabilities of about $321 million. According to the latest bankruptcy filing, its assets are $418 million and debt is $414 million. The 2008 Chapter 11 petition listed assets of $420 million against debt of $538 million.
In the first nine months of 2010, PepsiCo accounted for about 30 percent of Constar's net sales; the firm's top 10 customers for the remainder, said Securities and Exchange Commission filings.
Constar ranked No. 9 among North American blow molders in Plastics News' most recent industry survey with related sales of $508.1 million.