CarbonLite Holdings LLC – Names Successful Bidders for Dallas Assets ($63.9mn Bid) and Reading Assets ($98.1mn Bid) with Sales To Be Considered at June 3rd Hearing

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May 26, 2021 – Further to the Court’s April 9th bidding procedures order [Docket No. 399] and the completion of auctions on May 24th, the Debtors notified the Court that they have designated (i) Indorama Ventures Holdings L.P. ($63.87 bid) as the successful bidder for their CarbonLite Recycling LLC assets, including the Dallas Facility (the “Dallas Assets”) and (ii) DAK Americas LLC (“DAK”) ($98.1mn bid) the as the successful bidder for their CarbonLite P, LLC assets (the “Reading Assets”) [Docket Nos. 515 and 517, with each attaching asset purchase agreements in respect of the successful bidder; the Reading Assets notice also attached the back-up bidder's APA].

TSG Shelf II Acquisition, LLC ("TSG"), which the Debtors designated as the successfull bidder in respect of their CarbonLite Industries LLC assets, including the Riverside Facility (the “Riverside Assets,” winning bid) on May 22nd, was named as the back-up bidder for both of the Dallas and Reading asset groups. TSG is an affiliate of The Sterling Group, which lists among its portfolio companies Polychem, a manufacturer of recycled polyester strapping.

The PA/TX Sale Hearing sale hearings are scheduled for June 3, 2021, with objections due by June 2, 2021. The sale hearing in respect of the Riverside Assets is scheduled for May 26th.

The Dallas Assets

Indorama Venture Global Services Ltd. is an affilaite of Thailand-based global chemicals group Indorama Ventures (SET: "IVL"). Indorama's existing U.S. affiliates include: (i) Auriga Polymers in Spartanburg, South Carolina, (ii) StarPet in Asheboro, North Carolina and (iii) AlphaPet in Decatur, Alabama. To date there are few details as to the auction process beyond a notation that there were three bidders.

Key Terms of the Dallas Asset Purchase Agreement:

  • Seller: CarbonLITE Recycling, LLC
  • Buyer: Indorama Ventures Holdings L.P.
  • Purchase Price: (i) an aggregate amount equal to the sum of (A) the Closing Cash Consideration ($63,000,000), plus (B) the aggregate amount of all Cash and Cash Equivalents backing or securing the Acquired L/Cs as of the Closing in the amount set forth on Schedule 2.1(m) (the “L/C Consideration”), minus (C) any amounts drawn under any Acquired L/C as of the Closing but only to the extent not replenished prior to Closing, plus or minus (as applicable) (D) the amount, if any, by which the Final Closing Net Working Capital as of the Closing Date is greater or less than, as applicable, the Target Closing Net Working Capital, plus or minus (as applicable) (E) without duplication of any amount taken into account in calculating the Net Working Capital or the Purchase Price, Seller’s applicable portion of the Tax Prorations and Non-Tax Prorations plus (ii) without duplication of any item described in clause (i) of this definition, and solely for purposes of the Purchase Price allocation in Section 2.7(j), the Assumed Liabilities.

The Reading Assets

On May 3rd, the Debtors notified the Court that they had designated DAK as the stalking horse bidder in respect of their Reading Facility with a $96.0mn opening bid. The notice indicates that there were only two bidders.

The Debtors' Reading facility processes post-consumer plastic products made of polyethylene terephthalate (PET). These are converted into food-grade recycled PET (R-PET) pellets. Construction of the Reading Facility was substantially completed in August 2020, and the Company anticipates that the Reading Facility will be fully operational in April 2021.

DAK is "one of the largest integrated producers of PET resins in the world and the main producer of polyester staple fibers in the Americas. DAK Americas is headquartered in Charlotte, NC, and is wholly owned by Alfa S.A.B. de C.V. ("Alfa") of Monterrey, Mexico." Sitting between DAK and Alfa is Alfa's largest business unit Alpek S.A.B. de C.V.

Key Terms of the Reading Asset Purchase Agreement:

  • Seller: CarbonLITE P, LLC
  • Buyer: DAK Americas LLC
  • Purchase Price: (i) cash in the amount of $96,000,000.00, plus (A) the aggregate amount of all Cash or Cash Equivalents backing or securing the Acquired L/Cs as of the Closing Date in the amount set forth on Schedule 2.1(m), which in no event shall exceed $2,100,000.00 (the “L/C Consideration”), minus (B) any amounts drawn under any Acquired L/C as of the Closing Date, plus or minus (as applicable), (C) the amount, if any, by which the Net Working Capital as of the Closing Date is greater or less than, as applicable, the Target Closing Net Working Capital minus (D) the Tax Prorations, plus or minus (as applicable) (E) the Non-Tax Prorations, plus (ii) without duplication of any item described in clause (i) of this definition and solely for purposes of the Purchase Price allocation in Section 2.6(h), the Assumed Liabilities. The consideration described in clause (i) of this definition is referred to as the “Cash Consideration,” which is subject to adjustment pursuant to Section 2.6.

Marketing Efforts

The Debtors’ bidding procedures motion [Docket No. 112] states, “With the assistance of their investment banker Jefferies LLC (‘Jefferies’) and in consultation with the Secured Parties (as defined herein), the Debtors have been engaged in a robust marketing process since January 2021 to assist with the identification of one or more parties interested in pursuing a Sale or Sales (each, a ‘Potential Bidder’).

Since the Petition Date, the Debtors have continued the marketing and sale process and file this Motion to facilitate their continued efforts to market and sell their Assets, while preserving maximum optionality for the Debtors and their stakeholders. The Bid Procedures contemplate an open process that protects the best interests of the Debtors’ estates and creditors and preserves the Debtors’ ability to exercise their fiduciary duties throughout the Sale process (the ‘Sale Process’).

The Bid Procedures provide the formal framework for a Sale or Sales and have been structured to elicit value-maximizing bids for the Assets. Among other things, the Bid Procedures: (a) set forth the timeline for the Sale Process that is reasonable and appropriate to produce value-maximizing bids for the Debtors’ Assets and are consistent with the milestones set forth in each of the DIP Facilities; (b) establish the basic rules for submitting bids for the purchase of the Debtors’ Assets; (c) provide parameters for the selection of one or more Stalking Horse Bidders; and (d) provide major creditor groups with consultation rights at various stages in the process. The proposed Bid Procedures comply with the requirements of the Bankruptcy Code, the Bankruptcy Rules, and the Local Rules and, therefore, should be approved.”

The Debtors’ declaration in support of first day motions [Docket No. 13] adds: “Beginning in January 2021, Jefferies commenced a robust marketing process (the ‘Marketing Process’) for a sale of all or a portion of the Debtors’ assets (each, a ‘Potential Transaction’). As of the Petition Date, Jefferies has contacted approximately 135 potential acquirers (the ‘Interested Parties’) to alert such parties of the Debtors’ interest in pursuing a Potential Transaction and sent teasers and non-disclosure agreements to each of the Interested Parties. As of the Petition Date, 73 Interested Parties have executed non-disclosure agreements and have been given the opportunity to access certain information in an electronic data room containing extensive documentation regarding the Debtors’ finances and assets. To date, the Debtors have received eight indications of interest (‘IOIs’) from parties interested in pursuing a Potential Transaction. As of the Petition Date, nine Interested Parties have expressed interest in serving as a stalking horse bidder for a Potential Transaction.”

About the Debtors

According to the Debtors: “Founded by plastics entrepreneur, Leon Farahnik, CarbonLITE is based on the philosophy of Bottle-to-Bottle, Closed-Loop, recycling. Today, CarbonLITE is the largest producer of food-grade Post-consumer Recycled PET in the world. Each year over 6 billion bottles are recycled to be remade anew.

Through new state-of-the-art facilities, technologies, and equipment, CarbonLITE is invested and committed to making an impact in preserving resources and reducing the carbon footprint from PET bottle production. At CarbonLITE, we believe that recycling is the only responsible option. Destroying plastics and reliance on degradable plastics only increases the carbon footprint and wastes precious resources.

As to the Debtors’ recycling facilities: the Debtors note: “In March 2010, Leon Farahnik, a leader in the plastics industry for over 40 years, founded CarbonLite Industries LLC (‘Industries’) to develop and operate a processing facility in Riverside, California (the ‘Riverside Facility’) that recycles rPET bottles (procured by the Company in the form of 1,000 pound bales) into food-grade rPET resin pellets. These rPET resin pellets, in turn, are combined with virgin resin used by beverage makers to manufacture new bottles. The Riverside Facility commenced operations in November 2011. In October 2013, the Company formed CarbonLite RecyclingLLC (‘Recycling’) to develop and operate a second rPET processing facility in Dallas, Texas (the ‘Dallas Facility’). When the Dallas Facility came online in late 2017, it nearly doubled the Company’s processing capacity. In 2018, the Company formed CarbonLite P, LLC (‘CLP’) to develop and operate a third rPET processing facility in Reading, Pennsylvania (the “Reading Facility”). Construction of the Reading Facility was substantially completed in August 2020, and the Company anticipates that the Reading Facility will be fully operational in April 2021.”

Corporate Structure

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