Constar wins interim access to $7 million of DIP financing facility

By Jim Witters

Wilmington, Del., Dec. 20 - Constar International Holdings LLC's debtor-in-possession financing proposal hit a roadblock when the judge refused to approve the loans unless the debtors presented a budget that provides for the payment of 503(b)(9) claims.

"No budget, no payment, no DIP," Judge Christopher S. Sontchi told debtor attorney Brian E. Greer during a Dec. 20 hearing in the U.S. Bankruptcy Court for the District of Delaware.

The debtor sought interim access to $7 million of the $56 million DIP facility.

But the budget did not include payment of the claims.

Section 503(b)(9) of the bankruptcy code allows suppliers of goods to assert an administrative expense claim for the value of goods sold and delivered to, and received by, a customer in the ordinary course of business within 20 days of the customer's bankruptcy filing.

After two breaks in the hearing, during which the debtors and lenders huddled in the courthouse hallway, Greer said the lenders agreed to pay the claims and will include them in the interim DIP budget.

Sontchi also approved Constar's other routine first-day motions.

Greer said an accelerated case schedule is imperative because the company "was on the brink of closing its doors" after losing the contract for Pepsi products, its biggest customer.

Sontchi said the proposed schedule is "very, very tight," but he postponed a decision on the appropriate amount of time until a bid procedures hearing on Jan. 9.

The company negotiated an agreement to sell substantially all of its assets and save the jobs of 600 Constar workers, Greer said.

Amcor Rigid Plastics USA Inc. has proffered a stalking horse bid of $68.5 million, minus a cure adjustment amount, proration items attributable to the sellers and a closing working capital shortfall, plus a closing working capital excess and a cure overpayment.

DIP terms

As previously reported, Constar obtained a commitment for a $14 million new-money debtor-in-possession facility and a $42 million roll-up facility.

The lenders on a DIP credit facility for revolving advances are Wells Fargo Capital Finance, LLC and lenders under the company's pre-bankruptcy revolving credit facility.

The lenders/purchasers under the $56 million DIP note purchase facility will initially be Sola Ltd., Ultra Master Ltd., Northeast Investors Trust, JPMorgan High Yield Fund and JPMorgan Strategic Income Opportunities Fund.

Each roll-over secured party and shareholder secured party will have the opportunity before entry of the final order to be a purchaser in an amount equal to the greater of a percentage of the new-money facility equal to the term loan debt it holds divided by all term loan debt and an amount agreed to by the initial purchasers.

Interest on the credit facility will be either the base rate plus 225 basis points or Libor plus 325 bps. The note purchase facility will bear interest at 12%.

The DIP financing will mature on the earliest of 45 days after entry of the interim order if the final order has not been entered, Feb. 17, the effective date of a plan of reorganization, the conversion of the Chapter 11 cases and the completion of an asset sale under which all obligations are repaid in full.

A hearing for final DIP approval is scheduled for Jan. 9.

Constar, a Trevose, Pa.-based maker of polyethylene terephthalate food and beverage containers, filed for bankruptcy on Dec. 19. The Chapter 11 case number is 13-13281.

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