Constar Declares Second Bankruptcy

Constar International Inc., a plastic container manufacturing firm, filed for Chapter 11 bankruptcy protection for the second time in just over two years, Bloomberg reported earlier this week.

In a press statement, the Philadelphia company said it that its holders, who now own more than 75% of the firm in floating rate notes, have agreed to receive convertible preferred stocks worth $30 million and take majority ownership upon the company’s exit from bankruptcy.

Some of the holders also agreed to lend $55 million in bankruptcy loans, an arrangement known as debtor-in-possession (DIP). This will allow Constar to settle some of its debts and remain in business while under Chapter 11 protection.

Constar will also swap its floating rate notes, worth $220 million, into new term debts of $70 million. Existing stocks will be written off.

The company first filed for bankruptcy in December 2008, during which its senior subordinated notes were converted into equity. It emerged from Chapter 11 protection in May 2009, just five months after filing.

Constar representatives said the second filing arose from a decision by its main client, a Pepsi bottling firm, to stop outsourcing and start making its own plastic bottles.

A second filing is not uncommon for large companies entering bankruptcy, as shown by early studies by Boston College professor Edith Hotchkiss and UCLA law professor Lynn Lopucki. In a paper from the 1990s, the professors showed that about 30% of firms that emerge from bankruptcy seek another restructuring just a few years afterward.

 

Latest News:
Struggling States Refuse Bankruptcy Bill
Bankruptcies Reached 1.5 Million in 2010
More Bankruptcy Claims Traded In November