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March 08, 2021 01:09 PM

PET recycler CarbonLite files for bankruptcy

Steve Toloken
Assistant Managing Editor
Plastics News Staff
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    CarbonLite Holdings LLC
    CarbonLite says travel restrictions related to COVID-19 slowed the opening of a Pennsylvania facillity, adding to the business conditions that prompted the company to enter bankruptcy.

    PET bottle recycler CarbonLite Holdings LLC announced March 8 that it has filed for Chapter 11 bankruptcy, citing economic fallout from the COVID-19 pandemic.

    The Los Angeles-based company, which calls itself the world's largest producer of post-consumer PET resin, said in a statement the filing covers the company's three production plants in California, Texas and Pennsylvania, as well as its PinnPack Packaging subsidiary in California.

    "Pressures directly related to the coronavirus pandemic contributed to CarbonLite's decision to reorganize," the company said. "This included temporary production slowdowns caused by employee illness, the low price of virgin plastic relative to rPET [recycled PET] and a nine-month delay in the grand opening of the company's new Pennsylvania facility caused by travel restrictions that held up equipment commissioning by European manufacturers."

    The company said its business operations will continue without interruption, that there will be "no stoppage" of supply to customers and that "layoffs are not under consideration."

    The firm is getting ready to have an opening ceremony next month for the Pennsylvania plant, an $80 million facility outside Reading.

    In an early 2020 interview, CEO Leon Farahnik said the company was also considering a similar $80 million investment for a recycling plant in Florida to meet increased demand from consumer product makers including Coca-Cola Co, Nestle Waters North America and PepsiCo Inc.

    The company said it had incurred heavy capital expenses with a recent expansion of its Dallas plant and building the new 270,000-square-foot Pennsylvania plant. That latest facility started operating in October, with robotic systems, and is the world's largest stand-alone bottle-to-bottle recycling plant in the world, the company said.

    "We've chosen to take this necessary step during a time of unprecedented challenge and expect to emerge from reorganization even more strongly positioned for the future," Farahnik said. "Our customers, all of whom have steadily increased their commitments to the use of recycled plastic in their products, have expressed confidence in this process and our carefully considered decision."

    The company opened its first plant, in Riverside, Calif., in 2012.

    The petition, which was filed in U.S. Bankruptcy Court in Wilmington, Del., says the company has more than $85 million in unsecured claims against it, with the largest unsecured creditors listed as Nestle Waters North America Inc., which is owed $27.3 million, and Niagara Bottling LLC, which is owed $20.3 million.

    The former Chairman and CEO of Nestle Waters, Kim Jeffery, is on CarbonLite's board.

    Large creditors in the plastics industry include two units of recycler PolyQuest Inc. in Wilmington, N.C., which are jointly owed $4.8 million, and equipment supplier American Starlinger Sahm, which is owed $3.9 million.

    The company declined to comment beyond its statement, but in a February interview with Plastics News, Farahnik described difficult conditions in the market and the coronavirus pandemic straining CarbonLite's finances.

    The COVID-19 stay-at-home orders and heavy rains in California initially led to very low collection of PET bottles, creating challenges getting enough material supplied to its factories for a time, he said in an interview pre-recorded for broadcast during the online Plastics News Executive Forum March 15-18.

    As well, he said the company's plant in Dallas had "a big issue with the virus" as COVID-19 spread among staff, forcing the company to reduce production, he said.

    At one time, he said, the Dallas plant had 20 people with positive coronavirus tests and 20 others missing work because they had contact with those who had tested positive.

    "So at one time our plant was running with 40 people less and pretty much shutting half of our facility down," he said. "Unfortunately, the coronavirus had a huge effect on our company in 2020 and put a lot of, I would say, pressure on our financials and our production, and in return not being able to deliver material to our customers as well."

    In the interview, Farahnik did not disclose that the company was about to file bankruptcy.

    But he did detail economic challenges in the market beyond COVID-19, such as the low cost of virgin PET resin compared with the high cost of making post-consumer resin, and the difficulties in the U.S. raising PET bottle recycling rates, which have remained at around 30 percent nationally for years.

    China's ban on imported plastic scrap for recycling had also "drastically" reduced the cleanliness and quality of bales the company would buy as raw materials from recycling programs.

    And while he said many consumer product companies want to use recycled PET and are paying more for recycled materials than for virgin to do that, there's a lot of pressure from retailers to not pay any more for packaging with recycled materials.

    "You need the help of, I don't mind saying, of the Walmarts of the world, Costcos of the world, the Krogers of the world, all these customers, to become more involved," he said. "There is a lot of talk, but there's no action."

    He said pricing conditions make it difficult for investment in recycling.

    "We're fighting a battle here that we need higher pricing," Farahnik said. "We're spending $70 million to build a plant and the return on your investment is disastrous with this pricing in the market."

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