Strategic Materials cited rising feedstock prices and lower volumes, shifts in packaging away from glass, and other factors in its Chapter 11 filing. | Courtesy of the Glass Packaging Institute
A major U.S. downstream outlet for recovered glass from MRFs and bottle deposit programs filed for bankruptcy this month, citing $432 million in debts and interest. Strategic Materials says it plans to reorganize and continue operating normally without interruption.
The Houston-headquartered glass beneficiation company operates more than three dozen facilities across 19 states. Strategic is a major buyer of recovered post-consumer and post-industrial glass, including container, automotive and window glass. The company cleans up streams of recovered glass, sorting them and processing them for use in end markets that include glass bottles, fiberglass insulation and more.
Strategic on Dec. 4 filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the Southern District of Texas. A Chapter 11 filing indicates company leaders intend to reorganize the business and continue operating while paying creditors. Typically, a trustee is appointed by the bankruptcy court to oversee the reorganization, and creditors can vote on the reorganization plan proposed by the company.
Strategic, which processes more than 2 million tons of glass per year, described a range of business challenges leading to the bankruptcy. In its reorganization plan, the company cited “macroeconomic forces, including significantly increased interest rates and inflation, as well as changes in the glass recycling market and other operational challenges” as contributing factors. Strategic took steps to reduce costs and expenses and preserve liquidity, the bankruptcy filing states, including selling assets and property, leading to the restructuring plan.
Strategic says the Federal Reserve’s interest rate increases have made the company’s variable-interest funded debt “significantly more expensive” over the past two years.
Strategic’s largest unsecured creditors are BNSF Railway Company, Waste Management, and HRM Services, a trucking firm. Other unsecured creditors include Owens Illinois, Ardagh Glass, Allan Company, an array of freight and logistics companies, and equipment suppliers.
The company is sharing all bankruptcy documents on a dedicated website, which also has a section of information for suppliers. Strategic says all vendors will be paid as normal and that business operations will not be interrupted with the bankruptcy. The company has secured $23 million in new financing to fund ongoing operations during the restructuring, according to the website. An initial hearing on the bankruptcy was held Dec. 5, and a final hearing on confirmation of the reorganization plan is scheduled for Jan. 10, according to the website.
The company declined to comment further to Resource Recycling.
Competition increasing in recycling market
In a court filing laying out the reorganization, Strategic expanded on the glass recycling market challenges it has faced, noting increased competition and stricter cullet specifications have been factors.
“In 2019, one of the company’s largest suppliers in California constructed its own glass recycling plant, which eliminated approximately 100,000 tons of glass supply that would have otherwise been available to the Company,” the filing states. “Another one of the Company’s customers in Northern California has also entered the glass recycling market, causing further potential feedstock supply to be diverted away from the Company totaling approximately 120,000 tons. Both cases resulted in a ‘price war’ that increased glass supply costs to maintain capacity.”
The company didn’t identify either the supplier or customer, but there are a few likely candidates.
The customer in Northern California could be Gallo Glass, a container manufacturer that’s a subsidiary of major California winemaker E & J Gallo Winery. The company has been a buyer of cullet from Strategic, according to 2019 court records from a supply dispute between the two companies. Gallo recently opened Halo Glass Recycling, a glass processing facility in Modesto, Calif. According to Gallo’s 2023 sustainability report, the facility takes in glass from MRFs and redemption centers, cleans it up and processes it into bottle-ready cullet. The report doesn’t identify a capacity, but it suggests Gallo has big glass recycling plans: The company aims to scale up to processing 200,000 tons of recovered glass per year, according to the report.
The unnamed supplier-turned-competitor could be Potential Industries, a Wilmington, Calif.-headquartered recycling company that operates four MRFs in southern California. In 2020, the company created its own glass processing division, Potential Glass. Its “primary objective is to process glass from our existing operations along with third party suppliers,” the company writes on its website. “Since inception, [Potential Glass] has supplied processed glass to manufacturers of bottles, jars, and fiberglass.”
Demand shifts
Strategic further pointed to reduced demand for glass products in general, describing glass containers “increasingly being replaced by plastic counterparts and/or aluminum cans,” and also noted glass recycling rates are currently dropping. These factors pressured the company as well.
Additionally, the pandemic had an impact, resulting in “fewer people frequenting restaurants and bars which are historically bulk recyclers, resulting in more glass being sent to landfills or otherwise being removed from the recycling chain,” the company wrote. “The trend has not fully reversed in 2022 or 2023, and it is uncertain whether it will reverse to pre-pandemic levels in the future.”
Increasing amounts of contamination in the glass the company receives and glass redemption centers closing in California were also listed as factors pressuring the company.
Company history
The current Strategic company launched in 1994, but earlier iterations of the business date back to 1896. Strategic describes itself as the first nationwide glass recycling company in the U.S. The company also owns Ripple Glass, plastics processor NexCycle Inc., American Specialty Glass, Container Recycling Alliance and other various subsidiaries.
Strategic in 2017 was acquired by Connecticut-based investment firm Littlejohn & Co.
The company operates a total of 43 facilities in the U.S., Canada and Mexico. These include 16 plants with color sorting capabilities, 16 plants with equipment to produce fiberglass-ready glass feedstock, and 8 plants with equipment to process glass for use in abrasive blasting media production. Strategic has 568 full-time and 90 temporary workers at its recycling plants.
For the MRF glass Strategic buys, the company completes a secondary sorting process to remove contamination, typically paper, plastic, organics and metals. These can make up as much as 30% of the MRF glass the company brings in – and in the case of metals and OCC, the company can market the residual as recyclable commodities. In 2022, the company brought in $500,000 in revenue by selling residual materials, according to the reorganization plan.