By Peg Brickley
Constar International Holdings LLC, which is headed into a
bankruptcy auction for its assets, on Tuesday chose an affiliate of
Black Diamond Capital Management to finance its bankruptcy after a
"mini-auction" urged by the judge presiding over the case.
Judge Christopher Sontchi indicated he would approve the new
deal with Black Diamond, which bested other existing backers led by
Solus Alternative Asset Management LP in a competition for the
right to loan money to Constar in Chapter 11. Documents are still
being prepared on the deal, Dechert LLP's Michael Sage, attorney
for Constar, said at a court hearing Tuesday.
The Philadelphia-based maker of plastic containers is putting
its assets up for auction, with a $68.5 million buyout offer from
an affiliate of Australia's Amcor Ltd. (AMC.AU) to set a floor
price, and strong interest from Michigan's Plastipak Holdings Inc.,
and Georgia's CKS Packaging.
Constar's bankruptcy lender will be among the first in line to
be paid from the sale of the company.
Competition between the two contenders for the role of Chapter
11 lender drove down the price of the deal and slashed the amount
of old debt that is being "rolled-up" or included along with fresh
loans in the bankruptcy financing. As Chapter 11 loans, the aged
debts that will be included in the bankruptcy financing get top
rank in the scheme of payment priorities.
When it came to court Tuesday, Constar had chosen the financing
proposal from the group led by Solus because it offered more
certainty, according to company financial adviser Alexander
Stevenson of Lincoln International.
Mr. Stevenson also cited concerns Black Diamond wanted to
liquidate Constar, rather than sell it as an operating
business.
Winston & Strawn LLP's Daniel McGuire, attorney for Black
Diamond, denied the hedge fund wanted to liquidate Constar. He said
Black Diamond is prepared to come up with the bankruptcy financing
immediately, including money to cover the breakup fee that Solus is
entitled to collect for being displaced from the role of bankruptcy
financier.
Constar filed for bankruptcy protection after weeks of turmoil
that left it short of cash. However, the company has drawn down
only $1.1 million of the initial $7 million bankruptcy loan
extended by Solus.
Black Diamond, Solus and other investors were creditors in
Constar's earlier bankruptcies. The present Chapter 11 proceeding
is the third for the company, which struggled to get its balance
sheet in line with declining business, and finally no business at
all, from its largest customer, Pepsi-Cola Advertising and
Marketing Inc.
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.
(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
Subscribe to WSJ: http://online.wsj.com?mod=djnwires