New York, Dec 30 - Plastic bottle maker Constar International Inc filed for Chapter 11 bankruptcy protection on Tuesday, a day after box and bottle maker Chesapeake Corp announced its own bankruptcy, as the companies seek to restructure crippling debt payments.
Constar, which makes plastic containers for food, soft drinks and water, said in a release that a bankruptcy filing would allow it to cut debt by $175 million and reduce its annual interest expense by $19.3 million. It plans to continue operations as usual.
On Monday, Chesapeake Corp, a maker of paperboard and plastic packaging, filed for Chapter 11 bankruptcy protection and said it plans to sell itself to a group of private equity firms after the slowing economy and aggressive competition made it impossible for it to keep up with interest payments on its debt. It also plans to continue business as usual.
The back-to-back filings illustrate how packaging companies, which have been struggling with falling demand and high costs, are now being pushed to the brink by the difficulty of arranging new credit terms.
The Dow Jones container and packaging index .DJUSCP, which tracks the performance of packaging maker stocks, has fallen 41 percent so far this year as investors worry high debt levels and falling demand will slam company profits.
Chesapeake, which makes folding cardboard boxes, leaflets and plastic beverage bottles, said in court filings it is "significantly levered" with almost $521 million in non-trade, interest-bearing debt. That debt required annual interest payments of more than $49 million.
The company said it no longer has access to borrowings or other capital and determined that it could no longer support its current level of debt. It has nearly 400 employees.
DIP FINANCING
Both companies arranged for debtor-in-possession financing to fund operations while they restructure. Constar said it has reached an agreement with existing bank lenders to provide DIP and exit financing of $75 million, subject to court approval.
Holders of Constar's subordinated notes will swap the notes for common stock of the reorganized company. The company's current equity will be canceled, but all other creditor classes will be unimpaired, Constar said in a press release.
Chesapeake has asked the court to approve DIP financing of as much as $37 million provided by some of its banks, with Wachovia Bank as the agent.
A group of investors including affiliates of Irving Place Capital Management LP and Oaktree Capital Management LP has offered to pay $485 million for Chesapeake, with the amount paid to the company reduced by pension and severance obligations, subject to bankruptcy court approval.
Chesapeake said the Chapter 11 bankruptcy filing would help facilitate the purchase. Chesapeake's non-U.S. subsidiaries were not included in the filing and there were no plans to place them in administration, the company said.
"The sale transaction and Chapter 11 process will help us meet several critical objectives, including allowing ongoing operation of all of our businesses without interruption to supplier and customer relationships," Andrew Kohut, president and chief executive, said in a statement.
ASSETS AND LIABILITIES
Constar's assets and liabilities are each listed as more than $100 million, according to court documents.
Chesapeake's assets and liabilities were listed at between $500 million and $1 billion each, in court filings.
The Constar case is In re Constar International Inc, U.S. Bankruptcy court for the District of Delaware, No. 08-13432.
The Chesapeake case is In re Chesapeake Corp, U.S. Bankruptcy Court for the Eastern District of Virginia, Richmond Division. No. 08-36642.