Constar files for third Chapter 11 bankruptcy

February 2014 | DEALFRONT | CORPORATE BANKRUPTCY & RESTRUCTURING

Financier Worldwide Magazine

Bottle manufacturer Constar International Holdings LLC filed for its third Chapter 11 bankruptcy in five years in December, as the company attempted to push through its sale to stalking horse bidder Amcor Rigid Plastics USA Inc for an undisclosed auction price, believed to be in the region of $68.5m.

According to paperwork filed at the US Bankruptcy Court in Wilmington, Delaware, Constar and a number of the company’s subsidiaries voluntarily filed for Chapter 11 bankruptcy protection, citing both a slowdown in business and its intention to sell its US assets to Amcor. Constar hopes to sell its US business to Amcor as quickly as possible as the group has been rapidly running out of money. Both companies expect the deal to be completed in the first quarter of 2014.

In many respects, Constar’ financial woes can be traced back to the company’s devastating loss of the PepsiCo Inc contract at the end of 2012. PepsiCo, at the time Constar’s largest customer, like many companies within the food and beverage sector switched to producing its own bottles and storage containers. Combined with Constar’s seemingly insurmountable debt load, the loss of the Pepsi contract was particularly damaging to the company’s financial health. Yet despite these difficulties, Constar’s US business has still proven to be attractive to Australian multinational packaging company Amcor. Even with the loss of Pepsi’s business, in the US Constar still operates six plants with annualised sales of around $190m.

The transaction with Amcor will allow Constar and its employees to continue to provide valuable products and services to our customers and expand our offering and capabilities by leveraging the financial and other resources of Amcor. We are very excited for our employees and customers and believe this transaction creates a stable and extremely viable long term partner for our customers and vendors,” said Louis Imbrogno, Jr, interim chief executive of Constar.

Trevose, Pennsylvania based Constar indicated in court documentation that the firm has assets of between $50m and $100m and liabilities of $100m to $500m. The company also has between 200 and 999 creditors. Documentation filed at court lists Constar’s largest unsecured creditors as DAK Americas and DAK Resinas of Mexico, owed more than $15m, and Britvic Soft Drinks Ltd which is owed $5.43m. Amcor’s proposed stalking-horse bid is sufficient to pay off Constar’s $20m revolving loan facility and to provide ‘significant value’ to its term lenders, the company said in its court filings. Constar owes about $15.2m under a roll-over loan facility and around $88m under a shareholder facility agreement. The company also noted in its court papers that it will seek approval for DIP financing to help fund its continued operation during the wind-down.

Constar, which was purchased by Crown Cork & Seal Company in 1992 for $519m, was spun off from Crown in the early 2000s but has been a failure as a separate public company. The company previously filed for Chapter 11 bankruptcy in 2008 and 2011. In the latter of the two filings, Constar exchanged some of its debt for equity. A number of hedge funds managed by Solus Alternative Asset Management LP, Black Diamond Capital Management LLC and JPMorgan Chase & Co have owned significant stakes in Constar as a result of the debt for equity swaps. Constar’s largest shareholders are investment funds, including Solus Alternative Asset Management and Black Diamond Capital Management, that held its debt as it emerged from its previous bankruptcy. The company also noted in its press release announcing the decision to file for Chapter 11 that it intends to continue to operate in Europe as it evaluates sale options for its European operations. Constar’s financial adviser Lincoln Partners Advisors is in the process of marketing the company’s assets in the UK for a separate sale.

Richard Summerfield