UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF OHIO EASTERN DIVISION
^1 The Debtors in these jointly administered Chapter 11 cases, together with the last four digits of each Debtor's federal tax identification number, are: Crestline Packaging Solutions LLC (8274) and CPS Holdings Inc. (6031). The Debtors' headquarters are located at 4710 Industrial Corridor Drive, Akron, OH 44308.
MEMORANDUM OF LAW IN SUPPORT OF CONFIRMATION OF THE PREPACKAGED PLAN OF REORGANIZATION OF CRESTLINE PACKAGING SOLUTIONS LLC AND CPS HOLDINGS INC.
Right-click to update Table of Contents
PRELIMINARY STATEMENT
The Debtors, Crestline Packaging Solutions LLC ("Crestline" or "CPS"), an Ohio limited liability company, and CPS Holdings Inc. ("CPS Holdings"), a Delaware corporation (collectively, the "Debtors"), by and through their undersigned counsel, Calderwood & Harkness LLP and Kellner & Hartwick LLP, respectfully submit this Memorandum of Law in support of confirmation of the Prepackaged Plan of Reorganization (Dkt. 47, the "Plan") pursuant to 11 U.S.C. § 1129 and request that the Court enter an order (the "Confirmation Order") confirming the Plan at the confirmation hearing scheduled for August 29, 2022 (the "Confirmation Hearing").
Crestline is an Ohio-headquartered manufacturer of specialty chemical packaging and industrial containment products—including high-density polyethylene ("HDPE") drums, intermediate bulk containers ("IBCs"), steel pails, and specialty containment vessels—serving the chemical, petrochemical, and agricultural sectors. The company is headquartered at 4710 Industrial Corridor Drive, Akron, Ohio 44308 and employs approximately 1,420 individuals across four manufacturing facilities located in Ohio, Indiana, and Louisiana. CPS Holdings is a Delaware holding company that is the direct parent of Crestline, formed in connection with Thornfield Capital Partners LP's ("Thornfield") 2017 leveraged acquisition of the business.
The Debtors' financial difficulties arose from a confluence of adverse macroeconomic factors, including dramatic increases in the cost of high-density polyethylene resin—a critical input in the Debtors' manufacturing processes—and persistent supply chain disruptions that severely constrained the Debtors' ability to fulfill orders on a timely basis. These pressures resulted in an approximately 18% decline in revenue from fiscal year 2020 to fiscal year 2021, with the Debtors generating total revenue of $312.6 million in FY2021. More critically, EBITDA declined from $38.4 million in FY2021 to a trailing twelve-month ("TTM") figure of $29.1 million as of the first quarter of 2022, reflecting severe margin compression.
As a direct consequence of these financial headwinds, the Debtors breached the maximum leverage ratio covenant set forth in Section 7.11 of the First Lien Credit Agreement. That covenant required the Debtors' Total Net Debt to EBITDA ratio not to exceed 5.75x, tested on a quarterly basis. As of the first quarter of 2022, the Debtors' actual leverage ratio was 8.50x ($247.3 million of total funded debt divided by $29.1 million TTM EBITDA), exceeding the permitted maximum by 2.75 turns—a breach of 47.8% above the covenant threshold. On April 22, 2022, Ridgeline National Bank, N.A. ("Ridgeline"), in its capacity as administrative agent under the First Lien Credit Agreement, delivered a Notice of Default to the Debtors. This breach also triggered a cross-default under Section 6.01(e) of the Second Lien Notes Indenture. The Debtors and Ridgeline, together with consenting first lien lenders holding approximately 68% of the first lien term loan, entered into a Forbearance Agreement on May 18, 2022, which provided a 45-day forbearance period subsequently extended to July 15, 2022.
On June 20, 2022 (the "Petition Date"), the Debtors filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in this Court. The Chapter 11 cases are being jointly administered under Case No. 22-51247.
The Plan now before the Court is the product of extensive, arm's-length negotiations among the Debtors, their equity sponsor Thornfield, the Ad Hoc Group of First Lien Lenders (holding approximately 68% of the first lien term loan), and the Ad Hoc Group of Second Lien Noteholders (holding approximately 72% of the second lien notes). These negotiations, which spanned from the forbearance period through the early weeks of the Chapter 11 cases, culminated in the execution of a Restructuring Support Agreement (the "RSA") on July 8, 2022. Each constituency was advised by independent legal and financial professionals, and the resulting Plan reflects genuine economic compromises by all parties.
The Disclosure Statement (Dkt. 48, the "Disclosure Statement") was approved by the Court on August 10, 2022, and voting results have been tabulated by Pinnacle Claims Administration LLC ("Pinnacle"), the Debtors' court-appointed claims and noticing agent. The tabulation results demonstrate overwhelming acceptance of the Plan by all impaired classes entitled to vote:
• Class 2 (First Lien Secured Claims): 94.7% in amount and 87.5% in number voted to accept.
• Class 3 (Second Lien Secured Claims): 89.2% in amount and 78.6% in number voted to accept.
• Class 4 (General Unsecured Claims): 76.3% in amount and 68.4% in number voted to accept.
Each of these results exceeds the statutory thresholds prescribed by Section 1126(c) of the Bankruptcy Code, which requires acceptance by at least two-thirds in amount and more than one-half in number of claims in each class that actually voted. Because all impaired classes have accepted the Plan, no cramdown analysis under Section 1129(b) is necessary with respect to any accepting class.
The Plan provides the following estimated recoveries for each class of claims and interests:
• First Lien Secured Claims ($191.3 million): Holders receive 92% of the reorganized equity of the Debtors plus a $12.5 million new first lien take-back term loan. At the midpoint valuation of the reorganized enterprise ($195.0 million), this translates to an estimated recovery of approximately 94.3% of allowed first lien claims. Even at the mid-low scenario, recovery is estimated at approximately 72%.
• Second Lien Secured Claims ($59.9 million, including accrued interest): Holders receive 8% of the reorganized equity plus warrants for an additional 5% of the reorganized equity at a strike price equal to plan equity value, yielding an estimated recovery of approximately 12%.
• General Unsecured Claims ($14.8 million): Holders share a $1.5 million cash distribution pool on a pro rata basis, yielding an estimated recovery of approximately 10.1%.
• Existing Equity Interests (Thornfield): Cancelled with no distribution; 0% recovery.
These recoveries are materially superior to the distributions that creditors and interest holders would receive in a hypothetical Chapter 7 liquidation. The liquidation analysis prepared by Aldersgate Advisory Group LLC ("Aldersgate"), the Debtors' financial advisor, estimates a total liquidation value of $96.2 million to $112.5 million, which would be insufficient to satisfy the first lien secured claims in full, leaving second lien secured creditors, general unsecured creditors, and equity holders with no recovery whatsoever.
As demonstrated in detail below, the Plan satisfies each and every requirement for confirmation under 11 U.S.C. § 1129(a)(1) through (a)(16). The Debtors respectfully request that the Court enter the Confirmation Order at or after the Confirmation Hearing.
I. BACKGROUND
A. The Debtors' Business and Corporate Structure
Crestline Packaging Solutions LLC was formed in 2007 under the laws of the State of Ohio as a limited liability company. Crestline is headquartered at 4710 Industrial Corridor Drive, Akron, Ohio 44308, and is a leading manufacturer of specialty chemical packaging and industrial containment products. The company's product line includes HDPE drums, intermediate bulk containers, steel pails, and specialty containment vessels designed for use in the chemical, petrochemical, and agricultural sectors. The Debtors' products serve critical functions in the safe storage, transport, and handling of hazardous and non-hazardous chemical substances, and the Debtors maintain longstanding relationships with major customers in each of their key end markets.
The Debtors operate four manufacturing facilities across three states, employing approximately 1,420 individuals in the aggregate:
• Plant 1 (Akron, Ohio — Headquarters): Located at 4710 Industrial Corridor Drive, Akron, OH 44308, Plant 1 serves as Crestline's corporate headquarters and primary HDPE drum manufacturing facility. Approximately 480 employees work at this location, which houses the company's executive offices, engineering department, quality assurance laboratory, and primary production lines for HDPE drums.
• Plant 2 (Evansville, Indiana): Located at 2255 Commerce Parkway, Evansville, IN 47725, Plant 2 is dedicated to the manufacture of intermediate bulk containers and steel pails. Approximately 390 employees are based at this facility, which serves as a key production hub for the Debtors' IBC product line and houses fabrication, assembly, and testing operations.
• Plant 3 (Baton Rouge, Louisiana): Located at 8100 River Road, Baton Rouge, LA 70820, Plant 3 specializes in the production of specialty containment vessels for the petrochemical industry. With approximately 310 employees, this facility is strategically positioned in proximity to the Gulf Coast petrochemical corridor and maintains close relationships with several of the Debtors' largest customers.
• Plant 4 (Ravenna, Ohio): Located at 1480 State Route 59, Ravenna, OH 44266, Plant 4 houses the Debtors' extrusion and secondary processing operations, including polymer blending, sheet extrusion, and thermoforming. Approximately 240 employees are based at this location.
CPS Holdings Inc. is a Delaware corporation with its registered agent at 1209 Orange Street, Wilmington, Delaware 19801, care of National Corporate Services, Inc. CPS Holdings was formed in connection with the 2017 leveraged buyout and serves as the direct parent entity of Crestline. CPS Holdings has no independent operations and exists solely as a holding company in the corporate structure.
Thornfield Capital Partners LP, a Delaware limited partnership with offices at 590 Lexington Avenue, Suite 3200, New York, New York 10022, is a middle-market private equity firm focused on investments in the specialty industrial and packaging sectors. In 2017, Thornfield acquired 100% of the equity of CPS Holdings for a total enterprise value of approximately $410 million, contributing equity of $163 million and financing the balance through the prepetition first lien and second lien debt facilities described below.
B. Prepetition Capital Structure
As of the Petition Date, June 20, 2022, the Debtors had total funded debt of approximately $247.3 million, consisting of the following obligations:
First Lien Revolving Credit Facility. The Debtors maintained a revolving credit facility with commitments of $40.0 million, of which $32.6 million was drawn as of the Petition Date. The revolving facility bore interest at a rate of the Secured Overnight Financing Rate ("SOFR") plus 375 basis points, subject to a SOFR floor, and was scheduled to mature on October 13, 2022. Ridgeline National Bank, N.A. served as administrative agent and collateral agent under the revolving facility.
First Lien Term Loan. The Debtors were obligated under a first lien term loan with an original principal amount of $175.0 million, of which $158.7 million remained outstanding as of the Petition Date, reflecting scheduled amortization payments. The term loan bore interest at SOFR plus 425 basis points and was scheduled to mature on October 13, 2024. Ridgeline served as administrative agent and collateral agent.
9.75% Senior Secured Second Lien Notes due 2025. The Debtors issued $60.0 million in aggregate principal amount of 9.75% Senior Secured Second Lien Notes (CUSIP 22761TAA3) pursuant to an indenture dated October 13, 2017, with Continental Fiduciary Trust Company ("Continental Fiduciary") serving as indenture trustee. As of the Petition Date, $56.0 million in principal remained outstanding, reflecting $4.0 million in open-market repurchases conducted by the Debtors in 2019. Including $3.9 million in accrued interest (calculated at the contractual rate of 9.75% plus default rate interest of an additional 2.00% per annum from the date of the Notice of Default on April 22, 2022), the total second lien secured claim was approximately $59.9 million.
All of the foregoing debt instruments were originally executed on October 13, 2017, in connection with Thornfield's leveraged acquisition of the Debtors. The first lien obligations (revolving facility and term loan) share a common first-priority lien on substantially all of the Debtors' assets, while the second lien notes hold a second-priority lien on the same collateral, subject to an intercreditor agreement dated October 13, 2017, between Ridgeline (as first lien agent) and Continental Fiduciary (as second lien trustee).
In summary, the Debtors' prepetition funded indebtedness was structured as follows:
First Lien Secured Claims total approximately $191.3 million (comprising the $158.7 million first lien term loan plus the $32.6 million drawn on the revolving credit facility). Second Lien Secured Claims total approximately $59.9 million (comprising $56.0 million in principal plus $3.9 million in accrued and default rate interest). General Unsecured Claims are estimated at approximately $14.8 million, consisting primarily of trade payables and other obligations not secured by the Debtors' collateral.
C. Events Leading to the Chapter 11 Filing
Beginning in the second half of 2020 and intensifying throughout 2021 and into 2022, the Debtors experienced significant financial pressures driven by two primary factors: (i) sharp increases in the cost of high-density polyethylene resin, the Debtors' principal raw material input, which increased by approximately 40% to 60% during this period depending on grade and supplier; and (ii) widespread supply chain disruptions affecting the availability of resin, steel, and other critical inputs, as well as logistics and transportation services. These factors constrained the Debtors' ability to fulfill customer orders on a timely and cost-effective basis and led to severe compression of operating margins.
As a result, the Debtors' revenue declined approximately 18% from FY2020 to FY2021, with FY2021 revenue totaling $312.6 million. More significantly, the Debtors' EBITDA declined from $38.4 million in FY2021 to a trailing twelve-month figure of $29.1 million as of the first quarter of 2022, reflecting the lagging impact of elevated input costs and volume declines.
The First Lien Credit Agreement contained a financial maintenance covenant at Section 7.11 requiring the Debtors to maintain a maximum Total Net Debt to EBITDA leverage ratio not to exceed 5.75x, tested at the end of each fiscal quarter. As of the first quarter of 2022, the Debtors' actual leverage ratio was calculated as follows:
Total Funded Debt ($247.3 million) ÷ TTM EBITDA ($29.1 million) = 8.50x
The actual ratio of 8.50x exceeded the 5.75x covenant maximum by 2.75 turns, representing a breach of 47.8% above the permitted level. This was a material default under the First Lien Credit Agreement.
On April 22, 2022, Ridgeline National Bank, N.A., in its capacity as administrative agent under the First Lien Credit Agreement, delivered a formal Notice of Default to the Debtors, citing the breach of Section 7.11. The default under the First Lien Credit Agreement also constituted a cross-default under Section 6.01(e) of the Second Lien Notes Indenture, effectively placing the Debtors in default across their entire capital structure.
Following delivery of the Notice of Default, the Debtors, Ridgeline, and consenting first lien lenders holding approximately 68% of the outstanding first lien term loan entered into a Forbearance Agreement on May 18, 2022. The Forbearance Agreement provided for an original 45-day forbearance period, during which the lenders agreed to refrain from exercising remedies under the First Lien Credit Agreement, in exchange for the Debtors' agreement to engage in good faith restructuring discussions. The original forbearance period was scheduled to expire on July 2, 2022, and was subsequently extended by amendment to July 15, 2022, to allow for continued negotiations and preparation of the Chapter 11 filings.
D. Restructuring Negotiations and the RSA
During the forbearance period and in the weeks immediately preceding the Petition Date, the Debtors engaged in intensive, arm's-length restructuring negotiations with their principal stakeholder constituencies. These negotiations involved the Debtors and their management team, Thornfield (as the Debtors' equity sponsor), the Ad Hoc Group of First Lien Lenders, and the Ad Hoc Group of Second Lien Noteholders. Each party was represented by independent legal counsel and, where applicable, independent financial advisors.
The Ad Hoc Group of First Lien Lenders comprised Blackmoor Capital Management LLC, Greystone Fixed Income Partners LP, Wexford Opportunity Fund III LP, and other institutional holders of the first lien term loan who collectively held approximately 68% of the outstanding principal amount. The Ad Hoc Group of First Lien Lenders was represented by Hargrove, Mitchell & Saunders LLP, with Victoria Kline serving as lead partner.
The Ad Hoc Group of Second Lien Noteholders comprised Fenwick Structured Credit Fund II LP, Millhaven Capital Advisors LLC, and other institutional holders of the second lien notes who collectively held approximately 72% of the outstanding principal amount. The Ad Hoc Group of Second Lien Noteholders was represented by Pemberton & Locke LLP, with Raymond Delvecchio serving as lead partner.
The negotiations addressed all material aspects of the restructuring, including: (i) the allocation of reorganized equity among the first lien and second lien creditor groups; (ii) the amount and terms of any post-emergence take-back debt; (iii) the treatment of general unsecured claims; (iv) the treatment of existing equity interests; (v) the terms of the management incentive plan; (vi) the scope and terms of third-party releases; and (vii) the milestones and conditions to consummation of the restructuring.
These discussions were protracted and contentious at times, as the parties held materially different views regarding the Debtors' enterprise value, the appropriate allocation of value among creditor classes, and the necessity and scope of releases. Ultimately, however, through the exercise of good faith compromise and the guidance of experienced advisors, the parties reached a comprehensive agreement that was memorialized in the RSA, which was executed on July 8, 2022.
The RSA set forth the following key milestones:
• Petition Date: No later than July 31, 2022 (actual filing: June 20, 2022).
• Disclosure Statement Approval: Within 45 days of the Petition Date.
• Plan Confirmation: Within 90 days of the Petition Date.
• Effective Date: Within 15 business days of entry of the Confirmation Order.
E. The Chapter 11 Cases
The Debtors filed voluntary petitions for relief under Chapter 11 of Title 11 of the United States Code on June 20, 2022, thereby commencing these cases. The cases are jointly administered under Case No. 22-51247 pursuant to Bankruptcy Rule 1015(b).
On the day following the Petition Date, June 21, 2022, the Court conducted a hearing on the Debtors' First Day Motions, at which the Court entered orders approving, among other things: (i) critical vendor payments of up to $6.8 million to ensure the uninterrupted supply of essential raw materials and services to the Debtors' manufacturing operations; (ii) employee wage and benefit payments to the Debtors' approximately 1,420 employees; (iii) the continued use of the Debtors' existing cash management system; and (iv) other relief necessary to preserve the Debtors' ongoing operations during the pendency of the Chapter 11 cases.
On June 24, 2022, the Court entered the Interim DIP Order authorizing the Debtors to obtain postpetition financing under a $30.0 million senior secured superpriority revolving debtor-in-possession credit facility (the "DIP Facility"), with Ridgeline National Bank, N.A. serving as DIP agent. The DIP Facility bore interest at SOFR plus 500 basis points, with a commitment fee of $450,000 and a closing fee of $600,000. The DIP Facility was scheduled to mature on the earlier of (a) 120 days after the Petition Date and (b) the effective date of a confirmed plan of reorganization. On July 18, 2022, the Court entered the Final DIP Order, approving the DIP Facility on a final basis.
Following approval of the Solicitation Procedures Order, the Debtors commenced the solicitation of votes on the Plan on July 19, 2022. The voting deadline was established as August 3, 2022. All voting was conducted in accordance with the procedures approved by the Court and applicable provisions of the Bankruptcy Code.
On August 10, 2022, the Court entered an order approving the Disclosure Statement, finding that it contained adequate information within the meaning of Section 1125 of the Bankruptcy Code.
F. Summary of Plan Treatment
The Plan establishes six classes of claims and interests and provides the following treatment:
Class 1 — Other Priority Claims. Class 1 consists of all allowed priority claims other than administrative expense claims and priority tax claims. Each holder of a Class 1 claim shall be paid in full in cash on the Effective Date, or on such later date as such claim becomes allowed, or on such other terms as may be agreed to by the Debtors and the holder of such claim. Class 1 is unimpaired, and holders of Class 1 claims are conclusively presumed to accept the Plan pursuant to Section 1126(f) of the Bankruptcy Code. Estimated recovery: 100%.
Class 2 — First Lien Secured Claims ($191.3 million). Class 2 consists of all allowed first lien secured claims arising under or related to the First Lien Credit Agreement, including claims arising under both the revolving credit facility ($32.6 million) and the term loan ($158.7 million). In full and final satisfaction of their allowed claims, holders of Class 2 claims shall receive, on a pro rata basis: (i) 92% of the reorganized equity of the Debtors (subject to dilution by the Management Incentive Plan); and (ii) their pro rata share of a $12.5 million new first lien take-back term loan. Class 2 is impaired. At the midpoint enterprise valuation of $195.0 million, the estimated recovery for Class 2 is approximately 94.3%; at the mid-low scenario, the estimated recovery is approximately 72%.
Class 3 — Second Lien Secured Claims ($59.9 million). Class 3 consists of all allowed second lien secured claims arising under or related to the Second Lien Notes Indenture, including $56.0 million in principal and $3.9 million in accrued interest (including default rate interest). In full and final satisfaction of their allowed claims, holders of Class 3 claims shall receive, on a pro rata basis: (i) 8% of the reorganized equity of the Debtors (subject to dilution by the Management Incentive Plan); and (ii) warrants to purchase an additional 5% of the reorganized equity at a strike price equal to the plan equity value. Class 3 is impaired. Estimated recovery: approximately 12%.
Class 4 — General Unsecured Claims ($14.8 million). Class 4 consists of all allowed general unsecured claims against the Debtors. In full and final satisfaction of their allowed claims, holders of Class 4 claims shall receive their pro rata share of a $1.5 million cash distribution pool. Class 4 is impaired. Estimated recovery: approximately 10.1%.
Class 5 — Intercompany Claims. Class 5 consists of all intercompany claims between and among the Debtors. On the Effective Date, all intercompany claims shall be reinstated or cancelled at the Debtors' discretion, in each case without any distribution. Class 5 is deemed to accept the Plan.
Class 6 — Existing Equity Interests (Thornfield). Class 6 consists of all existing equity interests in the Debtors, including the equity interests held by Thornfield Capital Partners LP. On the Effective Date, all existing equity interests shall be cancelled, and holders of Class 6 interests shall receive no distribution under the Plan. Class 6 is impaired and deemed to reject the Plan. Estimated recovery: 0%.
Management Incentive Plan. The Plan reserves 10% of the reorganized equity of the Debtors for a post-emergence management incentive plan. Of this 10% pool, 50% shall vest on a time-based schedule (three-year cliff vesting) and 50% shall vest on a performance-based schedule (subject to achievement of specified EBITDA targets to be established by the reorganized board). The Management Incentive Plan shall dilute all equity classes pro rata.
II. LEGAL STANDARD FOR CONFIRMATION
Section 1129(a) of the Bankruptcy Code sets forth sixteen requirements that must be satisfied before a court may confirm a plan of reorganization. Under Section 1129(a), a plan shall be confirmed only if all of the requirements of paragraphs (1) through (16) of that subsection are met. 11 U.S.C. § 1129(a). The plan proponent bears the burden of establishing each element by a preponderance of the evidence. See In re Am. Solar King Corp., 90 B.R. 808, 819 (Bankr. W.D. Tex. 1988); see also In re Dow Cascade & Co.., 244 B.R. 696, 702 (Bankr. E.D. Mich. 1999) (applying preponderance standard in the context of a prepackaged plan in the Sixth Circuit).
Where, as here, all impaired classes of claims and interests that are entitled to vote have accepted the plan, the cramdown provisions of Section 1129(b) need not be invoked with respect to those accepting classes. See 11 U.S.C. § 1129(b)(1) (providing that cramdown is available only where "all of the applicable requirements of subsection (a) of this section other than paragraph (8) are met"). Because Classes 2, 3, and 4—the three impaired classes entitled to vote—have each accepted the Plan by the requisite majorities, the Debtors need only demonstrate that the Plan satisfies Section 1129(b) with respect to Class 6 (existing equity interests), which is deemed to reject the Plan because it receives no distribution. As discussed in Section V below, the Plan readily satisfies the absolute priority rule with respect to Class 6.
Courts in the Sixth Circuit and this District have consistently recognized the efficiency and benefits of the prepackaged plan process, which enables debtors to minimize the duration and cost of the Chapter 11 process while preserving value for all stakeholders. See, e.g., In re Kmart Corp., 359 F.3d 866, 869 (7th Cir. 2004) (acknowledging benefits of expeditious Chapter 11 process); In re Charter Commc'ns, Inc., No. 09-11435 (Bankr. S.D.N.Y. 2009) (confirming prepackaged plan); see also 7 COLLIER ON BANKRUPTCY ¶ 1129.01 (16th ed. 2022) (discussing standards for plan confirmation). The confirmation standards applied to prepackaged plans are identical to those applied to any other plan of reorganization; the distinction lies in the timing and method of solicitation, not in the substantive requirements for confirmation. See In re Southland Corp., 124 B.R. 211, 216–17 (Bankr. N.D. Tex. 1991).
The Debtors submit that, as set forth in the following sections, the Plan satisfies each and every requirement of Section 1129(a)(1) through (a)(16).
III. THE PLAN SATISFIES EACH REQUIREMENT OF 11 U.S.C. § 1129(a)
A. Section 1129(a)(1) — Plan Compliance with Title 11
Section 1129(a)(1) requires that a plan comply with the applicable provisions of Title 11. 11 U.S.C. § 1129(a)(1). This requirement encompasses, among other things, compliance with Sections 1122 and 1123 of the Bankruptcy Code.
Compliance with Section 1122 — Proper Classification. Section 1122(a) provides that "a plan may place a claim or an interest in a particular class only if such claim or interest is substantially similar to the other claims or interests of such class." 11 U.S.C. § 1122(a). The Plan establishes six classes of claims and interests, each of which contains claims or interests that are substantially similar in their legal nature, priority, and treatment:
• Class 1 (Other Priority Claims): This class encompasses all allowed priority claims other than administrative expense claims and priority tax claims. All claims in this class share the common characteristic of priority status under applicable provisions of the Bankruptcy Code.
• Class 2 (First Lien Secured Claims): This class comprises all allowed claims arising under or related to the First Lien Credit Agreement, including claims under both the revolving credit facility and the term loan. These claims share a first-priority lien on the Debtors' collateral and are properly classified together as first lien secured claims.
• Class 3 (Second Lien Secured Claims): This class encompasses all allowed claims arising under or related to the Second Lien Notes Indenture. These claims hold a second-priority lien on the Debtors' collateral, junior to the first lien obligations pursuant to the intercreditor agreement. The separation of first lien and second lien claims into distinct classes is appropriate and, indeed, required by their different lien priorities, contractual subordination provisions, and the terms of the intercreditor agreement. See In re Dow Cascade & Co.., 244 B.R. at 706 (recognizing that claims with different lien priorities should be separately classified).
• Class 4 (General Unsecured Claims): This class consists of all allowed general unsecured claims against the Debtors. These claims share the common characteristic of being unsecured and non-priority in nature.
• Class 5 (Intercompany Claims): This class consists of all intercompany claims between and among the Debtors, which are properly classified separately given their unique character.
• Class 6 (Existing Equity Interests): This class comprises all equity interests in the Debtors, which are properly classified separately from claims and from each other as interests rather than claims.
The classification scheme employed in the Plan is consistent with the requirements of Section 1122 and is supported by applicable case law. See, e.g., In re U.S. Truck Co., 800 F.2d 581, 586 (6th Cir. 1986) (discussing classification standards under Section 1122).
Compliance with Section 1123 — Required and Permissive Plan Contents. Section 1123(a) sets forth seven mandatory requirements for the contents of a plan of reorganization. The Plan satisfies each of these requirements:
• Section 1123(a)(1): The Plan designates each class of claims and interests, as described above.
• Section 1123(a)(2): The Plan specifies that Class 1 (Other Priority Claims) is unimpaired and that Classes 2, 3, 4, and 6 are impaired.
• Section 1123(a)(3): The Plan specifies the treatment of each impaired class, including the equity distribution, take-back debt, warrants, and cash pool described in Section I.F above.
• Section 1123(a)(4): The Plan provides for the same treatment for each claim or interest in a particular class, unless the holder of a particular claim or interest agrees to less favorable treatment.
• Section 1123(a)(5): The Plan provides adequate means for its implementation, including: (a) the issuance of reorganized equity to holders of Class 2 and Class 3 claims; (b) the execution and delivery of the new first lien take-back term loan in the amount of $12.5 million; (c) the funding of the $1.5 million general unsecured claims cash distribution pool; (d) the establishment of the Management Incentive Plan; (e) the cancellation of existing equity interests; and (f) the adoption of amended organizational documents for the reorganized Debtors.
• Section 1123(a)(6): The organizational documents of the reorganized Debtors will include provisions prohibiting the issuance of non-voting equity securities, consistent with this requirement.
• Section 1123(a)(7): The Plan contains provisions regarding the selection of directors and officers of the reorganized Debtors that are consistent with the interests of creditors and equity security holders and with public policy.
In addition, the Plan appropriately includes permissive provisions authorized by Section 1123(b), including provisions for the assumption and rejection of executory contracts and unexpired leases (Section 1123(b)(2)), and provisions for third-party releases, exculpation, and injunctions (Section 1123(b)(3)(A)), which are addressed in detail in Section IV below.
For all of the foregoing reasons, the Plan complies with all applicable provisions of Title 11, and Section 1129(a)(1) is satisfied.
B. Section 1129(a)(2) — Proponent Compliance with Title 11
Section 1129(a)(2) requires that the proponent of the plan comply with the applicable provisions of Title 11. 11 U.S.C. § 1129(a)(2). This requirement is generally understood to encompass compliance with the provisions of the Bankruptcy Code governing the disclosure and solicitation process, as well as compliance with all orders entered by the Court during the pendency of the case. See In re Dow Cascade & Co.., 244 B.R. at 703.
Compliance with Section 1125 — Adequate Information. Section 1125(a)(1) provides that adequate information means "information of a kind, and in sufficient detail, as far as is reasonably practicable in light of the nature and history of the debtor and the condition of the debtor's books and records ... that would enable ... a hypothetical investor ... to make an informed judgment about the plan." 11 U.S.C. § 1125(a)(1). The Disclosure Statement (Dkt. 48), which was approved by the Court on August 10, 2022, contains comprehensive information about the Debtors and the Plan, including:
• A detailed description of the Debtors' business, corporate structure, and history;
• Historical financial statements and financial performance data;
• A description of the Debtors' prepetition capital structure;
• A detailed narrative of the events leading to the Chapter 11 filing;
• A comprehensive summary of the treatment provided under the Plan for each class of claims and interests;
• A valuation analysis prepared by Aldersgate Advisory Group LLC, the Debtors' financial advisor;
• A liquidation analysis comparing estimated recoveries under the Plan to estimated recoveries in a hypothetical Chapter 7 liquidation;
• Five-year financial projections for the reorganized Debtors;
• A discussion of risk factors associated with the Plan and the reorganized Debtors' business; and
• Detailed voting procedures and instructions.
The Court has already made the determination that the Disclosure Statement contains adequate information within the meaning of Section 1125 by approving the Disclosure Statement on August 10, 2022.
Compliance with Section 1126(b) — Prepetition Solicitation. Section 1126(b) of the Bankruptcy Code provides that a holder of a claim or interest that has accepted or rejected the plan before the commencement of the case may be counted as having accepted or rejected the plan if: (i) the solicitation of such acceptance or rejection was in compliance with any applicable nonbankruptcy law, rule, or regulation governing the adequacy of disclosure in connection with such solicitation; or (ii) if there is not any such law, rule, or regulation, such acceptance or rejection was solicited after disclosure to such holder of adequate information as defined in Section 1125(a). 11 U.S.C. § 1126(b). Votes on the Plan were solicited in compliance with applicable nonbankruptcy law and the Solicitation Procedures Order approved by this Court, and the Debtors have fully complied with this requirement.
Compliance with Court Orders. Throughout the pendency of these Chapter 11 cases, the Debtors have complied with all orders entered by this Court, including the Interim and Final DIP Orders, the First Day Orders, the Solicitation Procedures Order, and all other operative orders. The Debtors have timely filed all required reports and schedules and have cooperated fully with the Office of the United States Trustee.
Accordingly, Section 1129(a)(2) is satisfied.
C. Section 1129(a)(3) — Good Faith
Section 1129(a)(3) requires that a plan be "proposed in good faith and not by any means forbidden by law." 11 U.S.C. § 1129(a)(3). Courts in the Sixth Circuit have interpreted this provision to require that the plan be "proposed with honesty, good intentions, and a basis for expecting that a reorganization can be effected with results consistent with the objectives and purposes of the Bankruptcy Code." In re Dow Cascade & Co.., 244 B.R. at 703; see also In re Koelbl, 751 F.2d 137, 139 (2d Cir. 1984). The good faith requirement is met where the plan is proposed with the "legitimate and honest purpose to reorganize and has a reasonable hope of success." In re Madison Hotel Assocs., 749 F.2d 410, 425 (7th Cir. 1984); see also In re Genco Shipping & Trading Ltd., 513 B.R. 233, 265 (Bankr. S.D.N.Y. 2014) (finding good faith where prepackaged plan resulted from extensive arm's-length negotiations).
The Plan overwhelmingly satisfies the good faith requirement, as evidenced by the following:
Arm's-Length Negotiations. The Plan is the product of extensive, arm's-length negotiations among the Debtors, their equity sponsor (Thornfield), the Ad Hoc Group of First Lien Lenders, and the Ad Hoc Group of Second Lien Noteholders. These negotiations spanned several months, commencing during the forbearance period that began on May 18, 2022, and continuing through the execution of the RSA on July 8, 2022. The process involved multiple rounds of proposals and counterproposals, each backed by detailed financial analyses, and resulted in genuine economic compromises by all participating parties.
Independent Advisors. Each party to the negotiations was advised by independent and experienced professionals. The Debtors engaged Aldersgate Advisory Group LLC as their financial advisor, led by Priya Narayanan, a managing director with over two decades of experience in restructuring advisory. Calderwood & Harkness LLP and Kellner & Hartwick LLP served as the Debtors' legal counsel. The Ad Hoc Group of First Lien Lenders was represented by Hargrove, Mitchell & Saunders LLP, led by Victoria Kline. The Ad Hoc Group of Second Lien Noteholders was represented by Pemberton & Locke LLP, led by Raymond Delvecchio. The involvement of these independent advisors ensured that each constituency was able to evaluate the Plan's terms and advocate effectively for its interests.
Going Concern Reorganization. The Plan is designed to reorganize the Debtors as a going concern, preserving approximately 1,420 jobs across the Debtors' four manufacturing facilities, maintaining the Debtors' operations and customer relationships, and maximizing the value available for distribution to all stakeholders. These objectives are squarely consistent with the purposes of Chapter 11 as Congress intended. See NLRB v. Bildisco & Bildisco, 465 U.S. 513, 528 (1984) ("The fundamental purpose of reorganization is to prevent a debtor from going into liquidation, with an attendant loss of jobs and possible misuse of economic resources.").
Sound Business Judgment. The decision to pursue a prepackaged restructuring was the product of careful deliberation by the Debtors' management, including CEO Marcus J. Reinholdt and CFO Dana Kowalski. As detailed in the Kowalski Confirmation Declaration, management evaluated a range of strategic alternatives before concluding that the prepackaged plan represented the most efficient and value-maximizing path forward, minimizing the duration and expense of the bankruptcy process while preserving the Debtors' business and relationships.
Genuine Economic Compromises. The Plan reflects genuine economic concessions by each stakeholder group. Thornfield's $163 million equity investment is being extinguished without any recovery—a total loss on its original investment. The first lien lenders are accepting equity in the reorganized Debtors and a modest take-back term loan in lieu of cash payment in full, accepting significant uncertainty regarding the ultimate recovery on their claims. The second lien noteholders are accepting a deeply impaired recovery of approximately 12%. And general unsecured creditors, who would receive nothing in a Chapter 7 liquidation, are receiving a meaningful, albeit modest, cash distribution of approximately 10.1%. These compromises are the hallmark of a good faith plan born of genuine negotiations. See In re Genco Shipping, 513 B.R. at 265.
For all of the foregoing reasons, the Plan was proposed in good faith and not by any means forbidden by law, and Section 1129(a)(3) is satisfied.
D. Section 1129(a)(4) — Court Approval of Payments
Section 1129(a)(4) requires that any payment made or to be made by the proponent, by the debtor, or by a person issuing securities or acquiring property under the plan, for services or for costs and expenses in or in connection with the case, or in connection with the plan and incident to the case, has been approved by, or is subject to the approval of, the court as reasonable. 11 U.S.C. § 1129(a)(4).
All payments made or to be made by the Debtors for services or costs and expenses in connection with the case or the Plan are subject to Court approval. The principal professional fees and expenses incurred or estimated to be incurred in connection with these Chapter 11 cases are as follows:
^2 Aldersgate's estimated fees of $4,025,000 include a completion fee of $3,500,000, payable upon the Effective Date, and a monthly advisory fee of $175,000 for the approximately three-month duration of these cases.
All professional fees are subject to the Court's review and approval pursuant to Sections 330 and 331 of the Bankruptcy Code, and the Debtors will file appropriate fee applications in accordance with applicable procedures.
In addition, the following fees and expenses have been or will be paid in connection with the DIP Facility, as previously approved by the Court in the Interim and Final DIP Orders: (i) a commitment fee of $450,000; and (ii) a closing fee of $600,000. These fees were disclosed in the DIP motion papers and approved by the Court as reasonable and necessary.
The Debtors have also secured a directors' and officers' tail insurance policy from Apex Indemnity Insurance Company, with an aggregate limit of $15.0 million and a premium of $1.2 million. The procurement of this policy is commercially reasonable and within the Debtors' sound business judgment, and ensures the continued protection of the Debtors' management and directors.
All of the foregoing payments have been fully disclosed in the Disclosure Statement and are subject to the Court's continuing oversight. Section 1129(a)(4) is satisfied.
E. Section 1129(a)(5) — Disclosure of Officers, Directors, and Insiders
Section 1129(a)(5) requires that the proponent of the plan disclose the identity and affiliations of any individual proposed to serve, after confirmation of the plan, as a director, officer, or voting trustee of the debtor, an affiliate of the debtor participating in a joint plan with the debtor, or a successor to the debtor under the plan, and that the appointment to, or continuance in, such office of such individual is consistent with the interests of creditors and equity security holders and with public policy. 11 U.S.C. § 1129(a)(5)(A).
The Plan and the Plan Supplement disclose the identity and qualifications of the proposed members of the board of directors (or equivalent governing body) of reorganized Crestline Packaging Solutions LLC. The Plan Supplement also discloses the terms of the Management Incentive Plan, which reserves 10% of the reorganized equity for management personnel. Of this reserve, 50% is subject to time-based vesting with a three-year cliff, and 50% is subject to performance-based vesting contingent upon the achievement of specified EBITDA targets to be established by the reorganized board.
The appointment of the proposed post-effective date management and board is consistent with the interests of creditors and equity security holders and with public policy. The proposed board members include individuals with substantial experience in the packaging and industrial products sectors, as well as individuals designated by the first lien lenders who will hold a majority of the reorganized equity, ensuring alignment between the interests of the reorganized Debtors' governance and the interests of its principal stakeholders.
Section 1129(a)(5) is satisfied.
F. Section 1129(a)(6) — Rate Changes
Section 1129(a)(6) requires that any governmental regulatory commission with jurisdiction, after confirmation of the plan, over the rates of the debtor has approved any rate change provided for in the plan, or that such rate change is expressly conditioned on such approval. 11 U.S.C. § 1129(a)(6).
The Plan does not provide for any change in rates over which any governmental regulatory commission has jurisdiction. The Debtors are not regulated utilities or otherwise subject to rate regulation by any governmental body. Accordingly, this provision is inapplicable and is deemed satisfied.
G. Section 1129(a)(7) — Best Interests of Creditors Test
Section 1129(a)(7) embodies the "best interests of creditors" test, which requires that, with respect to each impaired class of claims or interests, each holder of a claim or interest in such class either (a) has accepted the plan, or (b) will receive or retain under the plan on account of such claim or interest property of a value, as of the effective date of the plan, that is not less than the amount that such holder would receive or retain if the debtor were liquidated under Chapter 7 of the Bankruptcy Code. 11 U.S.C. § 1129(a)(7)(A)(ii).
Although all impaired classes have accepted the Plan, the best interests test must still be satisfied with respect to any non-accepting holder within an accepting class. The Debtors therefore present the following liquidation analysis, which demonstrates that every impaired class receives at least as much under the Plan as it would in a hypothetical Chapter 7 liquidation.
The liquidation analysis was prepared by Aldersgate Advisory Group LLC and is set forth in detail in the Disclosure Statement and the Narayanan Confirmation Declaration. The analysis estimates that the total liquidation value of the Debtors' assets—that is, the aggregate amount that would be realized upon the piecemeal disposition of the Debtors' assets by a Chapter 7 trustee—ranges from $96.2 million to $112.5 million, with a midpoint of approximately $104.4 million. This range reflects significant discounts from book value attributable to the forced-sale nature of a liquidation, including: (i) the specialized nature of the Debtors' manufacturing equipment and facilities; (ii) the limited secondary market for used HDPE drum manufacturing equipment; (iii) the costs of winding down operations, including employee severance and environmental remediation obligations; and (iv) the administrative costs of a Chapter 7 case, including trustee commissions and professional fees.
The following table compares estimated recoveries under the Plan with estimated recoveries in a hypothetical Chapter 7 liquidation for each impaired class:
^3 Calculated as 92% of midpoint enterprise value of $195.0 million ($179.4 million in equity value, net of $12.5 million take-back debt allocated to the reorganized balance sheet) plus $12.5 million take-back term loan = approximately $180.4 million in total value.
Class 2 (First Lien Secured Claims). In a Chapter 7 liquidation, first lien secured creditors would receive the entire liquidation value of the Debtors' assets (up to the amount of their allowed claims), estimated at a midpoint of approximately $104.4 million. This would yield a recovery of approximately 54.6% on their $191.3 million in allowed claims, leaving a deficiency claim of approximately $86.9 million at midpoint. Under the Plan, first lien secured creditors receive 92% of the reorganized equity plus a $12.5 million take-back term loan, with an estimated total value at midpoint of approximately $180.4 million, representing a recovery of approximately 94.3%—a recovery that is substantially and dramatically superior to the Chapter 7 outcome.
Class 3 (Second Lien Secured Claims). In a Chapter 7 liquidation, second lien secured creditors would receive nothing, because the entire estimated liquidation value would be absorbed by the first lien secured claims (which exceed the midpoint liquidation value by approximately $86.9 million). Under the Plan, second lien secured creditors receive 8% of the reorganized equity (valued at approximately $14.6 million at midpoint) plus warrants for an additional 5% of the reorganized equity. This recovery of approximately 12% is materially superior to the zero recovery available in liquidation.
Class 4 (General Unsecured Claims). In a Chapter 7 liquidation, general unsecured creditors would receive nothing, because all liquidation proceeds would be consumed by secured claims. Under the Plan, general unsecured creditors share a $1.5 million cash distribution pool, yielding an approximate recovery of 10.1%—again, materially superior to the zero recovery available in liquidation.
Class 6 (Existing Equity Interests). In a Chapter 7 liquidation, existing equity holders would receive nothing, as the liquidation value is insufficient to satisfy even the first lien secured claims in full. Under the Plan, existing equity interests are cancelled with no distribution. The Plan recovery equals the Chapter 7 recovery; no holder of an existing equity interest is worse off under the Plan than in a liquidation.
The best interests test is satisfied in full. Every impaired class receives at least as much under the Plan as it would in a hypothetical Chapter 7 liquidation, and most impaired classes receive substantially more. Section 1129(a)(7) is satisfied.
H. Section 1129(a)(8) — Acceptance by Impaired Classes
Section 1129(a)(8) requires that, with respect to each class of claims or interests, such class has accepted the plan or such class is not impaired under the plan. 11 U.S.C. § 1129(a)(8). Under Section 1126(c), a class of claims has accepted a plan if such plan has been accepted by creditors that hold at least two-thirds in amount and more than one-half in number of the allowed claims of such class held by creditors that have voted on the plan. 11 U.S.C. § 1126(c).
The voting results, as certified by Pinnacle Claims Administration LLC in the Tabulation Declaration, are as follows:
Class 2 — First Lien Secured Claims (Impaired; Entitled to Vote):
• Amount accepting: 94.7% (≥ 66.67% required)
• Number accepting: 87.5% (≥ 50.00% required)
• Result: ACCEPTED
Class 3 — Second Lien Secured Claims (Impaired; Entitled to Vote):
• Amount accepting: 89.2% (≥ 66.67% required)
• Number accepting: 78.6% (≥ 50.00% required)
• Result: ACCEPTED
Class 4 — General Unsecured Claims (Impaired; Entitled to Vote):
• Amount accepting: 76.3% (≥ 66.67% required)
• Number accepting: 68.4% (≥ 50.00% required)
• Result: ACCEPTED
Class 1 — Other Priority Claims (Unimpaired; Not Entitled to Vote):
• Unimpaired under the Plan; deemed to accept pursuant to Section 1126(f).
Class 5 — Intercompany Claims (Reinstated or Cancelled; Not Entitled to Vote):
• Reinstated or cancelled at the Debtors' discretion; deemed to accept the Plan.
Class 6 — Existing Equity Interests (Impaired; Deemed to Reject):
• Receives no distribution under the Plan; deemed to reject pursuant to Section 1126(g). However, because all impaired accepting classes have voted in favor of the Plan, cramdown under Section 1129(b) is required only with respect to Class 6. As discussed in Section V below, the Plan satisfies the requirements of Section 1129(b) with respect to Class 6 because no junior class receives any property under the Plan, and the absolute priority rule is fully respected.
All impaired classes entitled to vote have accepted the Plan by margins that substantially exceed the statutory thresholds. Section 1129(a)(8) is satisfied with respect to all classes other than Class 6, and the Plan satisfies Section 1129(b) with respect to Class 6 as discussed below.
I. Section 1129(a)(9) — Treatment of Priority Claims
Section 1129(a)(9) requires that the plan provide certain specified treatment for holders of priority claims. 11 U.S.C. § 1129(a)(9).
The Plan provides for the following treatment of priority claims:
Administrative Expense Claims (Section 503(b)). All allowed administrative expense claims, including professional fee claims allowed under Section 330 of the Bankruptcy Code, shall be paid in full in cash on the Effective Date, or as soon thereafter as such claims are allowed, or on such other terms as may be agreed to by the Debtors and the holder of such claim. Professional fee claims are subject to the Court's allowance process under Section 330 and will be paid in accordance with the terms of the Plan and applicable orders of the Court.
Priority Tax Claims (Section 507(a)(8)). All allowed priority tax claims shall be paid in full in cash on the Effective Date, or on such other terms as may be agreed to by the Debtors and the applicable taxing authority, or as otherwise provided in Section 1129(a)(9)(C) of the Bankruptcy Code.
Class 1 — Other Priority Claims. All allowed Class 1 claims shall be paid in full in cash on the Effective Date or as otherwise agreed by the holder and the Debtors.
DIP Claims. All obligations under the DIP Facility shall be satisfied in full on or before the Effective Date, in accordance with the terms of the Final DIP Order and the DIP credit agreement.
The Plan thus provides for the payment in full of all priority claims as required by Section 1129(a)(9). This requirement is satisfied.
J. Section 1129(a)(10) — At Least One Accepting Impaired Class (Excluding Insiders)
Section 1129(a)(10) requires that, if a class of claims is impaired under the plan, at least one class of claims that is impaired under the plan has accepted the plan, determined without including any acceptance of the plan by any insider. 11 U.S.C. § 1129(a)(10).
Three classes of claims are impaired under the Plan: Class 2 (First Lien Secured Claims), Class 3 (Second Lien Secured Claims), and Class 4 (General Unsecured Claims). All three impaired classes have voted to accept the Plan by the requisite statutory margins. The acceptances by the members of the Ad Hoc Group of First Lien Lenders—including Blackmoor Capital Management LLC, Greystone Fixed Income Partners LP, and Wexford Opportunity Fund III LP—and the members of the Ad Hoc Group of Second Lien Noteholders—including Fenwick Structured Credit Fund II LP and Millhaven Capital Advisors LLC—do not constitute insider votes. These are independent, third-party financial institutions with no management, governance, or ownership relationship with the Debtors that would render them "insiders" within the meaning of Section 101(31) of the Bankruptcy Code. Similarly, the general unsecured creditors who voted in Class 4 are arm's-length trade creditors and other non-insider parties.
Section 1129(a)(10) is satisfied.
K. Section 1129(a)(11) — Feasibility
Section 1129(a)(11) requires that "[c]onfirmation of the plan is not likely to be followed by the liquidation, or the need for further financial reorganization, of the debtor or any successor to the debtor under the plan, unless such liquidation or reorganization is proposed in the plan." 11 U.S.C. § 1129(a)(11). The feasibility requirement is intended to ensure that "the plan offers a reasonable prospect of success and is workable." In re Made in Detroit, Inc., 414 F.3d 576, 580 (6th Cir. 2005); see also In re Am. Solar King Corp., 90 B.R. at 825. The proponent need not demonstrate guaranteed success; rather, "a reasonable assurance of commercial viability" is sufficient. In re Dow Cascade & Co.., 244 B.R. at 705.
The Plan more than satisfies this standard. The evidence of feasibility is compelling:
Financial Projections. Aldersgate Advisory Group LLC has prepared five-year financial projections for the reorganized Debtors, which are summarized in the Disclosure Statement and detailed in the Narayanan Confirmation Declaration. These projections reflect a recovery from the supply chain disruptions and resin cost pressures that depressed the Debtors' TTM EBITDA to $29.1 million. Projected FY2023 EBITDA is $36.5 million, reflecting anticipated normalization of resin costs, recovery of order volumes, and the implementation of cost reduction initiatives. The projections are based on reasonable and supportable assumptions regarding industry conditions, customer demand, and the Debtors' operating capabilities.
Reorganized Enterprise Value. The reorganized enterprise value at midpoint is estimated at $195.0 million (range: $180.0 million to $210.0 million), reflecting an implied TEV/EBITDA multiple of 5.3x on projected FY2023 EBITDA. This valuation is consistent with comparable company and comparable transaction analyses performed by Aldersgate and is a reasonable reflection of the reorganized Debtors' value as a going concern.
Dramatically De-Levered Balance Sheet. Perhaps the most significant indicator of feasibility is the dramatic reduction in the Debtors' debt burden. Total post-emergence funded debt will consist solely of the $12.5 million new first lien take-back term loan, compared to prepetition total funded debt of $247.3 million—a reduction of approximately $234.8 million, or approximately 95%. The terms of the new take-back term loan are highly manageable:
• Principal amount: $12.5 million
• Interest rate: SOFR + 550 basis points (with a 1.00% SOFR floor)
• Maturity: August 31, 2028
• Amortization: 1.00% per annum ($125,000 per year, payable in quarterly installments of $31,250)
The post-emergence leverage ratio will be $12.5 million divided by $36.5 million projected EBITDA, or 0.34x—a level that provides enormous financial cushion and is well within any reasonable leverage threshold. The reorganized Debtors' annual debt service (interest plus amortization) will be approximately $1.0 million to $1.2 million, depending on prevailing SOFR rates, which represents a fraction of the reorganized Debtors' projected cash flow.
Continued Operations. The reorganized Debtors will continue to operate all four manufacturing facilities, maintain their approximately 1,420-person workforce, and honor key commercial relationships. There will be no interruption to the Debtors' manufacturing operations as a result of the restructuring.