Contract analysis

1. On June 20, 2022 (the "Petition Date"), each of the Debtors filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code with this Court, commencing these jointly administered chapter 11 cases. Since the Petition Date, the Debtors have continued to operate their businesses and manage their properties as debtors in possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. No trustee,

2. By this Motion, the Debtors seek authority to pay, in the ordinary course of business and in the exercise of their sound business judgment, prepetition claims of certain Critical Vendors in an aggregate amount not to exceed $6,800,000.00 (the "Critical Vendor Cap"), subject to the conditions and safeguards set forth herein.

3. The Debtors' business — the design, manufacture, testing, and distribution of high-density polyethylene ("HDPE") drums, intermediate bulk containers ("IBCs"), steel pails, and specialty containment vessels for the chemical, petrochemical, and agricultural sectors — is critically dependent on a limited number of specialized suppliers of raw materials, components, coatings, and logistics services. The Debtors' produ

4. The Debtors operate four manufacturing facilities across three states, which collectively employ approximately 1,420 workers and represent the productive core of the Debtors' enterprise: (a) Plant 1 — 4710 Industrial Corridor Drive, Akron, OH 44308 (corporate headquarters and primary HDPE drum manufacturing facility; approximately 480 employees); (b) Plant 2 — 2255 Commerce Parkway, Evansville, IN 47725 (IBC and s

5. The Debtors' raw material inputs — most prominently HDPE resin, cold-rolled and hot-rolled steel, specialty coatings and fluoropolymer linings, valves, fittings, and proprietary closure components — are sourced from a concentrated group of suppliers, many of whom are the sole or dominant source for specific grades, specifications, and formulations required by the Debtors' manufacturing processes and their customer

6. If Critical Vendors refuse to supply the Debtors on customary terms — or worse, cease shipments entirely — the Debtors' manufacturing operations would suffer immediate and irreparable harm. Production shutdowns at any of the four manufacturing plants would cascade through the Debtors' supply chain, result in the Debtors' inability to fulfill customer orders, trigger contract penalties, cause loss of key customer r

7. The relief requested herein is essential to the Debtors' ability to preserve value, maintain operations, and effectuate a successful reorganization. The aggregate amount of Critical Vendor claims — $6.8 million — is modest relative to the Debtors' total funded debt of $247.3 million and the estimated reorganized enterprise value (midpoint: $195.0 million), and the Debtors' DIP budget, approved as part of the $30.0

8. The Debtors' Chief Financial Officer, Dana Kowalski, provides further factual support for this Motion and the other first day motions filed by the Debtors in the Declaration of Dana Kowalski, Chief Financial Officer of Crestline Packaging Solutions LLC, in Support of the Debtors' First Day Motions (the "Kowalski Declaration"), filed contemporaneously herewith and incorporated by reference herein.

9. The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and 1334 and the General Order No. 2012-7 of the United States District Court for the Northern District of Ohio referring all proceedings arising under, arising in, or related to a case under title 11 to this Court.

10. This is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2). The Debtors confirm their consent, pursuant to Rule 7008-1 of the Local Bankruptcy Rules, to the entry of a final order by this Court in connection with this Motion to the extent that it is later determined that this Court, absent consent of the parties, cannot enter final orders or judgments in connection herewith consistent with Article III

11. Venue is proper in this district pursuant to 28 U.S.C. §§ 1408 and 1409. CPS, the principal operating Debtor, has had its principal place of business, its corporate headquarters, and its domicile in this district for in excess of 180 days prior to the Petition Date.

12. The statutory predicates for the relief requested herein are sections 105(a) and 363(b) of the Bankruptcy Code.

III. BACKGROUND A. General Background

13. Crestline Packaging Solutions LLC is an Ohio limited liability company organized under the laws of the State of Ohio and headquartered at 4710 Industrial Corridor Drive, Akron, OH 44308, federal employer identification number ("EIN") 31-1782094. CPS is the principal operating entity of the Debtors and conducts substantially all of the Debtors' manufacturing, distribution, and customer-facing business operations.

14. CPS Holdings Inc. is a Delaware corporation, EIN 82-3491657, that serves as the direct parent holding company of CPS. CPS Holdings Inc. does not conduct any independent business operations but is a co-obligor or guarantor under substantially all of the Debtors' funded indebtedness and was formed in connection with the leveraged buyout transaction described below.

15. The Debtors were acquired by Thornfield Capital Partners LP, a private equity firm headquartered in New York, New York, in a leveraged buyout that closed on October 13, 2017 (the "LBO"). The LBO valued the enterprise at $410.0 million, with Thornfield contributing approximately $163.0 million in equity capital and the balance of the purchase price funded through a combination of first lien and second lien secured

16. Since the LBO, the Debtors have operated as a leading independent manufacturer of industrial packaging products serving the chemical, petrochemical, and agricultural sectors. The Debtors' product portfolio includes HDPE closed-head and open-head drums (ranging from 15-gallon to 55-gallon capacities), intermediate bulk containers in capacities from 275 gallons to 550 gallons, steel pails (1-gallon to 7-gallon), an

17. The Debtors' financial performance is summarized as follows:

18. As reflected in the table above, the Debtors experienced a significant and sustained decline in financial performance from FY2020 through the first quarter of 2022, driven principally by dramatic increases in resin input costs (HDPE resin prices increased approximately 48% from January 2020 to December 2021), global supply chain disruptions arising from the COVID-19 pandemic, increased freight and logistics costs

19. As of the Petition Date, the Debtors' total funded debt was approximately $247.3 million, consisting of the following obligations: (a) Revolving Credit Facility: A $40.0 million senior secured revolving credit facility (the "Revolver"), of which $32.6 million was drawn as of the Petition Date, with Ridgeline National Bank, N.A. ("Ridgeline") serving as administrative agent and collateral agent for the revolving l

20. All of the Debtors' funded indebtedness is secured by liens on substantially all of the Debtors' assets, with the First Lien Facilities holding first priority liens and the Second Lien Notes holding second priority liens, subject to the terms of that certain Intercreditor Agreement, dated as of October 13, 2017, between Ridgeline (as first lien collateral agent) and Continental Fiduciary Trust Company (as second

21. In the first quarter of fiscal year 2022, the Debtors breached the maximum total net leverage ratio covenant set forth in Section 7.11 of the First Lien Credit Agreement. The First Lien Credit Agreement required the Debtors to maintain a Total Net Leverage Ratio (defined as Total Net Debt divided by Consolidated EBITDA, each as defined therein) not to exceed 5.75 to 1.00. As of the end of Q1 2022, the Debtors' ac

22. On April 22, 2022, Ridgeline, acting in its capacity as administrative agent under the First Lien Credit Agreement, delivered a formal Notice of Default (the "Notice of Default") to the Debtors, declaring the occurrence of an Event of Default under Section 8.01(d) of the First Lien Credit Agreement as a result of the covenant breach described above. The Notice of Default further reserved Ridgeline's and the first

23. The delivery of the Notice of Default triggered cross-default provisions under Section 6.01(e) of the Second Lien Indenture, constituting an Event of Default under the Second Lien Indenture and affording the indenture trustee and the holders of the Second Lien Notes the right to accelerate the obligations thereunder.

24. Following the delivery of the Notice of Default, the Debtors engaged in intensive negotiations with their key creditor constituencies. On May 18, 2022, the Debtors entered into a Forbearance Agreement (the "Forbearance Agreement") with consenting first lien lenders holding approximately 68% of the outstanding principal amount of the First Lien Term Loan, pursuant to which such lenders agreed to forbear from exerc

25. The Debtors are pursuing a prepackaged Chapter 11 plan of reorganization (the "Plan") supported by the Restructuring Support Agreement (the "RSA"), the execution of which by the requisite parties is anticipated on or about July 8, 2022. The RSA was negotiated and substantially agreed in all material respects prior to the Petition Date among the Debtors, Thornfield Capital Partners LP (the Debtors' equity sponsor)

26. The Debtors' manufacturing operations at the four plants described above require a continuous and uninterrupted supply of raw materials, components, coatings, and services from a concentrated group of specialized suppliers. The principal categories of raw materials and inputs include: (a) High-density polyethylene (HDPE) resin — the primary raw material for HDPE drum and IBC production at Plants 1, 2, and 4, proc

27. Resin is the Debtors' single largest raw material cost, accounting for approximately 38% of total cost of goods sold in FY2021. The Debtors' primary resin supplier is Northstar Polymers Inc. ("Northstar"), headquartered in Houston, Texas, which supplies HDPE resin to the Debtors pursuant to a five-year Resin Supply Agreement dated March 1, 2019 (the "Resin Supply Agreement"). Under the Resin Supply Agreement, Nor

28. The specialty chemical packaging industry imposes exacting regulatory and customer-certification standards. All of the Debtors' drums, IBCs, and containment vessels used for the packaging, transport, and storage of hazardous materials must carry UN/DOT performance certifications, which are obtained through rigorous testing protocols conducted by accredited third-party testing laboratories. These certifications ar

29. In the weeks preceding the Petition Date, as the Debtors' financial difficulties became more widely known in the market, certain vendors expressed concern about the Debtors' ability to pay for ongoing purchases. At least six (6) vendors contacted the Debtors' procurement department to request cash-on-delivery terms, and three (3) vendors indicated that they would cease shipments entirely absent assurance of payme

IV. THE CRITICAL VENDORS A. Identification and Selection Criteria

30. The Debtors, with the assistance of their financial advisor, Aldersgate Advisory Group LLC ("Aldersgate") (lead managing director: Priya Narayanan), and debtor's counsel, Calderwood & Harkness LLP ("Sterling"), have undertaken a thorough and comprehensive review of the Debtors' entire vendor base — consisting of approximately 740 active vendors — to identify those suppliers whose continued provision of goods and

31. In conducting this analysis, the Debtors, Aldersgate, and Sterling applied the following criteria to identify vendors that qualify as Critical Vendors: (a) Sole-Source or Limited-Source Status: Whether the vendor is the sole source or one of a very limited number of sources for a raw material, component, or service that is necessary for the Debtors' manufacturing operations. Vendors that are the only qualified su

32. Based on the application of these criteria, the Debtors have identified approximately thirty-five (35) to forty (40) vendors that meet the definition of Critical Vendors. The Debtors recognize that the identification of Critical Vendors necessarily involves the exercise of business judgment and requires ongoing assessment as conditions evolve during the chapter 11 cases. The Debtors reserve the right to add or re

33. The identified Critical Vendors generally fall into the following categories:

34. Resin and Polymer Suppliers. This category includes Northstar Polymers Inc. — the Debtors' primary HDPE resin supplier under the Resin Supply Agreement — as well as secondary resin suppliers that provide specialty polymer blends, regrind material, and color concentrates used in the Debtors' manufacturing processes. Resin constitutes the single largest material cost input for the Debtors' HDPE drum and IBC product

35. Steel and Metal Suppliers. This category includes suppliers of cold-rolled and hot-rolled steel for steel pail manufacturing at Plant 2 (Evansville) and for certain specialty containment vessel fabrication at Plant 3 (Baton Rouge). The Debtors require specific grades and thicknesses of steel that are produced by a limited number of domestic mills. The Debtors have historically sourced steel from two primary suppl

36. Specialty Coatings, Linings, and Chemical Suppliers. This category includes providers of interior coatings, phenolic linings, epoxy formulations, and fluoropolymer treatments that are applied to the Debtors' drums, pails, and containment vessels to provide chemical resistance. These coatings and linings are essential for the Debtors' products to meet the chemical compatibility requirements of their customers and

37. Valves, Fittings, and Component Suppliers. This category includes suppliers of closures, valves, gaskets, fittings, and other components used in the assembly of IBCs and specialty containment vessels. Many of these components are proprietary to the supplier or are manufactured to the Debtors' custom specifications. Certain valve and fitting assemblies are individually certified and serialized for traceability pur

38. Logistics and Transportation Providers. This category includes freight carriers and specialized hazmat transportation companies that are essential to the Debtors' operations. These carriers transport raw materials to the Debtors' four manufacturing plants and deliver finished products to customers located throughout the United States and Canada. Certain of these carriers hold specialized DOT hazardous materials t

39. Maintenance, Repair, and Operations (MRO) Suppliers. This category includes providers of critical replacement parts, tooling, and consumables for the Debtors' extrusion lines, blow-molding equipment, welding systems, and other specialized manufacturing equipment. The Debtors' manufacturing equipment includes proprietary and custom-built machinery for which replacement parts are available only from the original eq

40. Based on the Debtors' review, the aggregate prepetition claims of all identified Critical Vendors is estimated at approximately $6,800,000.00. This amount represents prepetition balances owed to the approximately thirty-five (35) to forty (40) vendors identified as meeting the Critical Vendor criteria described above.

41. The Debtors seek authority to pay Critical Vendor claims in an aggregate amount not to exceed $6,800,000.00 (the "Critical Vendor Cap"), subject to the exercise of the Debtors' sound business judgment. The Debtors do not intend to pay the full prepetition balance of every identified Critical Vendor in every instance. Rather, the Debtors seek the flexibility to negotiate with individual Critical Vendors and to mak

42. As a condition of receiving any Critical Vendor payment, each Critical Vendor will be required to agree in writing to continue supplying the Debtors with goods and/or services on trade terms at least as favorable as those in effect between such vendor and the Debtors during the twelve (12) months prior to the Petition Date, including with respect to credit terms, pricing, availability, service levels, and other c

43. The Debtors respectfully request that the Court enter an order, substantially in the form of the Proposed Order attached hereto as Exhibit A: (a) authorizing, but not directing, the Debtors, in the exercise of their sound business judgment, to pay prepetition claims of Critical Vendors in an aggregate amount not to exceed $6,800,000.00, subject to the Customary Trade Terms Requirement; (b) authorizing and directi

VI. BASIS FOR RELIEF A. The "Doctrine of Necessity" and Section 105(a)

44. Section 105(a) of the Bankruptcy Code provides that "[t]he court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title." 11 U.S.C. § 105(a). This provision vests the bankruptcy court with broad equitable powers to fashion relief necessary to preserve the debtor's estate and facilitate the goals of chapter 11 reorganization.

45. Courts in the Sixth Circuit and throughout the country have recognized the "doctrine of necessity" — sometimes referred to as the "necessity of payment" doctrine or the "critical vendor" doctrine — which permits a debtor in possession to pay prepetition claims where such payment is essential to the continued operation of the debtor's business and, ultimately, to the preservation of value for the benefit of all cr

46. The doctrine of necessity traces its origins to the nineteenth-century equity receivership cases, in which courts authorized receivers to pay pre-receivership obligations to parties whose continued cooperation was essential to the operation of the business. See Miltenberger v. Logansport, Crawfordsville & Southwestern Railway Co., 106 U.S. 286 (1882) (authorizing receiver to pay pre-receivership claims of connect

47. Courts applying the doctrine of necessity in the critical vendor context generally require a showing that: (i) the vendor's goods or services are essential to the debtor's continued operations; (ii) the vendor will refuse to continue dealing with the debtor absent payment of its prepetition claim; (iii) no adequate alternative source of the goods or services exists, or no such source can be secured within a timef

48. In the Sixth Circuit, the doctrine of necessity has been recognized and applied by bankruptcy courts in this district and others. See, e.g., In re Quality Stores, Inc., No. 01-03116, 2001 WL 36237846 (Bankr. W.D. Mich. Oct. 3, 2001) (authorizing payment of critical vendor claims under the doctrine of necessity where debtor demonstrated that vendors were essential and irreplaceable); In re UAL Corp., No. 02-48191

49. As set forth in detail above and in the Kowalski Declaration, the Debtors have satisfied each of the elements required for application of the doctrine of necessity: (a) Essential Goods and Services. The Critical Vendors supply raw materials, components, coatings, services, and logistics that are indispensable to the Debtors' manufacturing operations at all four plants. Without these inputs, the Debtors cannot pro

50. Section 363(b)(1) of the Bankruptcy Code provides that "[t]he trustee, after notice and a hearing, may use, sell, or lease, other than in the ordinary course of business, property of the estate." 11 U.S.C. § 363(b)(1). Courts review transactions proposed under section 363(b) under the business judgment standard, which requires the debtor to show that the proposed action represents a sound exercise of business jud

51. Under the business judgment standard, courts will defer to the debtor's decision so long as it is made in good faith, is based upon adequate information, and reflects a reasonable exercise of the debtor's judgment. See In re Schipper, 933 F.2d 513, 515 (7th Cir. 1991); In re Trans World Airlines, Inc., 322 F.3d 283, 292 (3d Cir. 2003). The standard is not one of perfection but of reasonableness; a debtor need not

52. The Debtors' decision to pay Critical Vendor claims in an aggregate amount not exceeding $6,800,000.00 is a sound exercise of business judgment. The cost of these payments is far outweighed by the catastrophic harm that would result from the shutdown or material disruption of any of the Debtors' four manufacturing plants. The four plants collectively employ approximately 1,420 workers and generated $312.6 million

53. Moreover, the Debtors' financial advisor, Aldersgate, has reviewed and concurs with the Debtors' identification of Critical Vendors and the aggregate amount of Critical Vendor claims. Aldersgate's analysis confirms that the cost of paying Critical Vendor claims is substantially less than the projected losses that would result from even a partial disruption of the Debtors' manufacturing operations. C. The Debtors

54. Absent the relief requested herein, the Debtors face an immediate and significant risk that Critical Vendors will refuse to supply the Debtors on customary credit terms, will demand cash in advance or cash on delivery, or will cease shipments entirely. As noted above, several vendors have already communicated these concerns to the Debtors prior to and in connection with the filing of the chapter 11 cases.