Ben Gray/Atlanta Journal-Constitution via AP
Smoke billows from a fire at the BioLab facility in Conyers, Georgia, on September 29, 2024.
While attention has rightly been paid to the devastation of western North Carolina and other areas in the aftermath of Hurricane Helene, a non-natural disaster in the Southeast that appears to be unrelated to the storm transpired simultaneously. Over the weekend, a chemical plant in Conyers, Georgia, exploded in a massive warzone-level blast. Billowing clouds of smoke could be seen from miles away. The nearby stretch of the I-20 highway shut down, 17,000 residents have been evacuated, and another 90,000 have been ordered to shelter in place. That order was reimposed Tuesday morning after briefly lifting, when a weather change blew the toxic clouds back over a populated area.
There are conflicting indications from authorities about safety and air quality. According to local reporting, residents are already exhibiting symptoms such as shortness of breath, lung tightness, coughing, and eye irritation. A law firm is investigating the matter and offering free consultations with affected residents, advising a local news site that victims “may be entitled to compensation.”
But will the company that owns the plant have any cash left over for the victims of its negligence? A cursory look at its capital structure raises doubts.
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The explosion came from a facility owned by the swimming pool and spa water treatment manufacturer BioLab, Inc., which itself is owned by the private equity firm Centerbridge Partners. The plant has a long recent history of explosions, fires, and workplace safety violations. Four years ago, a similar explosion at another plant in Georgia subsumed the vicinity in a chlorine vapor cloud, just one month after a major fire at a BioLab plant in Louisiana triggered a nationwide shortage of pool products.
After the most recent BioLab fire earlier this summer in Westlake, Louisiana, the U.S. Chemical Safety Board found the company responsible for negligence and five separate safety violations that led to the fire. BioLab was fined a measly $2,500, paid to local authorities, for the disruption caused by a separate shelter-in-place.
Despite these repeated accidents, the Rockdale County economic development authority in Conyers paid the company an undisclosed amount in tax breaks for an expansion of the BioLab site in 2019.
BioLab is saying it took all proper precautions leading up to the explosion this weekend. In a statement to the Prospect, a spokesperson said, “Over the years, our company has been rigorous about actioning enhancements to our facilities, policies, and practices … We also conduct periodic tests and evaluations of our fire protection systems based on industry standards, as well as walk-throughs with the local Fire Department.”
But how all these incidents keep stacking up raises further questions. BioLab’s private equity owners also have a long recent history of extracting enormous dividends from the business, financed not by the company’s profits but by multibillion-dollar debt issuances and the recent sale of a partner company that manufactures automotive products.
Translated into plain English, this means that if the explosion totals BioLab’s chlorine plant and forces the company into bankruptcy, unsecured creditors will likely get nothing.
Just two and a half months ago, the parent company, KIK, owned by Centerbridge, announced it would be selling BioLab’s sister company, which makes Prestone-branded antifreeze, among other automotive products, to the chemical conglomerate Recochem for $850 million. A credit rating report on the transaction said that Centerbridge would be using the proceeds of the sale to pay investors “sizable dividends” and “modestly reduce its balance sheet debt,” adding that the transaction would significantly “elevate” BioLab’s indebtedness to 8.4 times its earnings before interest, taxes, depreciation, and amortization. Based on the S&P Global ratings analysis, it appears that the $850 million sale was almost entirely pocketed by investors through the accompanying dividend.
That marked the third or fourth time since BioLab’s twin explosions in 2020 that Centerbridge had ratcheted up the company’s debt load to line its own pockets. In December 2020, BioLab floated a $775 million term loan to finance a dividend, and then the following month it returned to the market to float an even bigger loan. In December 2021, it floated another $170 million in “add-on” term loan debt, and then in June it launched still another $925 million loan sale to finance a dividend.
The BioLab bonanza is part of a broader—and quite dangerous—industry trend. Dividend recapitalizations, in which private equity–owned companies issue debt to finance payouts, are back in a big way, and on track to surge past the record level set in 2021. Centerbridge has cashed in mightily on this trend. The firm just last month pocketed more than $250 million on a dividend recap of a home health agency it co-owns.
What’s truly alarming about this trend is that interest rates have been about 500 basis points higher than they were during the last dividend recap bonanza, meaning the price that workers, customers, and stakeholders of these companies must shoulder to service the debt resulting from these transactions is substantially higher—as is the risk that they will push companies into bankruptcy.
On the occasion of BioLab’s last monster dividend in June, the credit rating agency S&P Global estimated that the parent company would still generate enough profit to make its interest payments, but it hedged that confidence with an astonishing admission: It was grading the unsecured debt at a “recovery rating” of “6,” denoting “negligible (0%-10%; rounded estimate: 0%) recovery in the event of a default.” Translated into plain English, this means that if the explosion totals BioLab’s chlorine plant and forces the company into bankruptcy, unsecured creditors will likely get nothing. That includes the company’s pension funds and any contractors, staffing agencies, or suppliers to whom BioLab owes money—as well as anyone who tries to sue BioLab for the harms, environmental or otherwise, caused by its series of toxic infernos.
Somewhat ironically, Centerbridge founder Mark Gallogly, a Democratic mega-donor who has contributed millions of dollars to Democratic politicians and committees over the years, is married to an environmental scientist and identifies as a “climate activist.” The couple has given well over $800,000 to Democrats this election cycle. Just a few months ago, Gallogly even went on CNBC to beseech viewers to vote for Joe Biden because of climate change. (Gallogly retired as managing principal of Centerbridge in 2020 but still owns a chunk of the company.)
Centerbridge did not respond to a request for comment from the Prospect.
Poisoning communities with toxic negligence and then using bankruptcy discharges to get out of paying for it is such a common private equity playbook at this point, Gallogly probably doesn’t see the contradiction. After all, Biden BFF David Rubenstein’s Carlyle Group left a far bigger environmental disaster when a Philadelphia oil refinery it owned blew up in 2019 after Carlyle siphoned at least $600 million in dividends from the dilapidated facility, then abandoned it altogether in bankruptcy the year earlier. (That cleanup is projected to cost well over a billion dollars, with most of it shouldered one way or another by taxpayers; the refinery also owed the Environmental Protection Agency hundreds of millions of dollars when it filed for bankruptcy.)
In a similar saga two years ago involving a sterilization plant just 26 miles away from BioLab’s pool products factory, the company Sterigenics, co-owned by the private equity firm helmed by former Obama administration Treasury Secretary Tim Geithner, knowingly exposed local residents of the area surrounding its facilities in Georgia and Illinois to carcinogenic emissions, all while issuing billions of dollars in debt to pay dividends to investors, according to published reports. While Sterigenics has yet to file for bankruptcy protection, it used the threat of it to settle lawsuits with more than 870 residents who had been sickened by its toxic fumes for about $400 million, a fairly paltry sum given evidence assembled by the EPA that residents of the contaminated areas developed cancer at a rate nine times the national average.
This bankruptcy play is a familiar strategy that Centerbridge could very well turn to, if lawsuits and federal fines cause their chemical cash cow to go up into financial flames.
