Constar International Inc., a Philadelphia manufacturer of plastic containers dogged by losses since its 2002 spin-off from Crown Holdings Inc., filed for bankruptcy protection yesterday.
The bankruptcy, prearranged with key creditors, will reduce debt by $175 million and eliminate $19.3 million in annual interest payments, Constar said.
The deal will wipe out current shareholders, including Crown, which still owned 9.7 percent of Constar's shares. Not that shareholders had much to lose: The stock had already lost most of its value, closing at 15 cents a share Monday. Yesterday it hit 4 cents.
Constar, which employs 50 at its Northeast Philadelphia headquarters and 1,570 overall, went public with a heavy debt load and has consistently had more interest expense than operating income.
The company reported $323.97 million in net losses from 2003 through 2007. Its bankruptcy filing said it had $420 million in assets and $638 million in debt.
Chief executive officer Michael Hoffman said Constar would continue operating as usual during bankruptcy and invest the savings in growth opportunities.
"We intend to pay all of our obligations in full - which includes providing pay and benefits to our employees as usual, honoring all contracts, and paying suppliers in full," Hoffman said in a news release.
Crown bought Constar in 1992 for $515 million in a bid to expand from its base of steel food cans and aluminum beverage cans. The purpose of Constar's 2002 spin-off for $12 a share was to pay down some of Crown's own $4.3 billion in debt.
Constar is not alone in its struggles in the PET (polyethylene terephthalate) container industry, said John Maddox, an industry consultant based in Florida.
The plastic-bottle-makers are in a precarious position between their suppliers, the plastic-resin producers, and their customers, such as PepsiCo Inc., which accounted for 39 percent of Constar's revenue in the first nine months of 2008.
Maddox said PepsiCo and other beverage companies had been squeezing profits of container suppliers by manufacturing more of their own bottles, because the start-up costs are not that great. "The brand owners have gotten so strong and have so many options," Maddox said.
On the plus side, Maddox said, Constar has excellent technology used in bottles, such as one for Hunt's Ketchup, that protect food and beverages from oxygen seeping through the plastic.