CarbonLite Holdings, LLC & Affiliates

THE JOINTLY ADMINISTERED DEBTORS

• CarbonLite Holdings LLC
• CarbonLite Industries LLC
• CarbonLite P Holdings LLC
• CarbonLite P LLC
• CarbonLite PI Holdings LLC
• CarbonLite Pinnpack LLC
• CarbonLite Recycling Holdings LLC
• CarbonLite Recycling LLC
• CarbonLite Sub-Holdings, LLC
• Pinnpack P, LLC
• Pinnpack Packaging LLC

The Debtors constitute the largest supplier of recycled polyethylene terephthalate (“rPET”) plastic in the world. They operate recycling facilities in Riverside, California, Dallas, Texas, and Reading, Pennsylvania. The Debtors also operate Pinnpack Packaging, which has a facility in Oxnard, California that produces plastic products including tubs, bowls, domes, and clamshells for food packaging. The company’s recycling facilities sell rPET directly to the company’s Pinnpack branch, making the company a comprehensive plastic processor.

CONCERNS FOR CREDITORS

Most large bankruptcy cases that are currently being filed are blaming their descent into insolvency on the COVID-19 pandemic. While CarbonLite cites the pandemic as the reason for the delay in construction of the Pennsylvania plant, which should be fully operational in April 2021, that is not why the company is in bankruptcy.

Instead, CarbonLite explains that operational errors are the primary drain on its resources. These operational failures include both underutilization of the very expensive recycling facilities that CarbonLite has developed and bad contracts with customers that led to CarbonLite spending far more than necessary for products while failing to recoup its overspend in sales profits.

Essentially, CarbonLite has stated that poor management has put it in the position where it was forced to file for Chapter 11 bankruptcy protection. CarbonLite hired a Chief Restructuring Officer (“CRO”) in December 2020, and the CRO will lead the company through bankruptcy. Creditors must demand further information from the CRO regarding the day-to-day input of prior management, including CEO Leon Farahnik, who put the company into this position.

THE SALE OF CARBONLITE AND PINNPACK

In its initial filings, CarbonLite disclosed that it has approximately $238 million in secured debt and an additional $112.7 million in unsecured debt, plus additional amounts that are owed on a subordinated basis. The company also disclosed approximately $7.3 million in PPP loans but has not stated whether it believes it will be able to obtain forgiveness for some or all of the PPP amount.

CarbonLite’s untenable debt position has led it to seek a sale of all of its assets. The marketing process for such a sale began pre-petition and CarbonLite claims that it has identified at least eight potential buyers who have submitted non-binding indications of interest. The newly-filed motion for approval of bid procedures has not shed much more light on the process. The Debtors have indicated a willingness to accept bids for some, but not all, assets, leaving a gulf of uncertainty for creditors. They still anticipate involving a committee of unsecured creditors, if one is formed, in the sale process.

The proposed timeline for the sale of CarbonLite and Pinnpack has not changed much in the bid procedures motion.

• April 8th: Debtors hope to gain approval of procedures
• May 3rd: Auction of the Debtors’ assets
• May 7th: Hearing to approve a sale of the Debtors
• May 22nd: Closing of the sale

Creditors should act fast to protect their rights in light of this tight timeline that is proposed for the multi-million dollar sale of the Debtors.