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By Peg Brickley
A bidding war is brewing for Constar International Holdings LLC,
the Philadelphia-based maker of plastic bottles that scrambled for
the safety of bankruptcy in December, clutching a $68.5 million
buyout offer from an affiliate of Australia's Amcor Ltd.
(AMC.AU).
Michigan's Plastipak Holdings Inc., which has annual revenues of
about $2.5 billion, and Georgia's CKS Packaging, with 2013 sales of
$375 million, could also be contending for Constar, which is in its
third bankruptcy but which is being put up for sale for the first
time.
Both filed protests of bid rules designed to reward Amcor for
agreeing to serve as a "stalking horse" or opening bidder with a
committed deal that sets a floor price for Constar. The deal
protections Constar originally proposed would have required other
bidders to top Amcor's offer by some $5 million, just to get into
the competition, court papers say.
Plastipak and CKS weighed in in advance of a hearing in the U.S.
Bankruptcy Court in Wilmington, Del., where Constar is operating
under Chapter 11 protection. A judge must approve rules for the
bidding.
Two previous Chapter 11 proceedings were debt-for-equity swaps
engineered by lenders. The proceedings chopped back the liability
side of the balance sheet but left Constar with more debt than its
struggling business was able to support. A maker of containers for
the food and beverage industry, Constar lost its largest customer
and was not able to replace the business.
Both Plastipak and CKS complain about being ignored in the runup
to Constar's bankruptcy, alleging they were not given access to the
documents they need to formulate bids.
The new Chapter 11 filing followed a troubled couple of weeks at
Constar, which left the company desperately short of cash and saw
most of the board of directors head for the exits. Constar's
lawyers credited Amcor for holding its ground in spite of the
problems with a buyout proposal that inspired efforts to preserve
the business.
Constar's unsecured creditors joined Plastipak and CKS in
objecting to bid protections that they said were unnecessary to
spur competition. Creditor representatives want more time for
potential bidders to look over the company and lower protections,
such as a breakup fee and expense reimbursement, for Amcor's bid,
to make it easier for rivals to make offers.
In advance of a court hearing Thursday, Constar agreed to cut
$1.3 million out of Amcor's bid protections, a package of rewards
it will collect if it is bested at the auction. Company attorneys
say the rules are geared to making sure the auction is lively.
Besides U.S. operations, Constar is separately auctioning its
operations in the U.K. and Netherlands as it attempts to gather
funds to cover unpaid bills, including some $123 million in funded
debt.
The company's official committee of unsecured creditors, which
formed ranks just days ago, is also criticizing Constar's
bankruptcy financing for allegedly being unduly protective of
existing senior lenders.
Elements of the loan would elevate some existing debt to the
status of a Chapter 11 loan, putting the validity of the debt
beyond question and putting the loan first in line to be paid from
the sale proceeds.
Hedge funds managed by Solus Alternative Asset Management LP,
Black Diamond Capital Management LLC and J.P. Morgan Chase &
Co. (JPM) have split over the bankruptcy financing, with Black
Diamond objecting to it and the Solus and J.P. Morgan affiliates
defending it as Constar's "only viable option."
(Dow Jones Daily Bankruptcy Review covers news about distressed
companies and those under bankruptcy protection. Go to
http://dbr.dowjones.com)
Write to Peg Brickley at peg.brickley@wsj.com
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