UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF OHIO EASTERN DIVISION
In re:
CRESTLINE PACKAGING SOLUTIONS LLC, et al.,
Debtors.
Case No. 22-51247 (Jointly Administered)
Chapter 11
Hon. Patricia M. Gallagher
DECLARATION OF PRIYA NARAYANAN IN SUPPORT OF CONFIRMATION OF THE PREPACKAGED PLAN OF REORGANIZATION OF CRESTLINE PACKAGING SOLUTIONS LLC AND CPS HOLDINGS INC.
Filed in connection with the Prepackaged Plan of Reorganization of Crestline Packaging Solutions LLC and CPS Holdings Inc. (Dkt. 47) (the "Plan") and Disclosure Statement (Dkt. 48) (the "Disclosure Statement"), and respectfully submitted in advance of the Plan Confirmation Hearing scheduled for August 29, 2022.
I. INTRODUCTION AND QUALIFICATIONS
A. Identity and Role of Declarant
1. My name is Priya Narayanan. I am a Lead Managing Director at Aldersgate Advisory Group LLC ("Aldersgate"), a nationally recognized financial advisory and investment banking firm with principal offices at 280 Park Avenue, 12th Floor, New York, New York 10017. I submit this declaration (this "Declaration") in support of confirmation of the Prepackaged Plan of Reorganization (the "Plan") of Crestline Packaging Solutions LLC ("Crestline" or "CPS") and CPS Holdings Inc. ("CPS Holdings," and together with Crestline, the "Debtors"), which was filed with this Court on July 15, 2022 (Dkt. 47), in connection with the Plan Confirmation Hearing currently scheduled for August 29, 2022.
2. Aldersgate was retained as financial advisor and investment banker to the Debtors pursuant to an engagement letter dated May 2, 2022 (the "Engagement Letter"), as approved by this Court pursuant to an order entered on July 6, 2022 (Dkt. 34), authorizing the Debtors' retention of Aldersgate under Section 327(a) of Title 11 of the United States Code, 11 U.S.C. §§ 101–1532 (the "Bankruptcy Code"). Under the terms of the Engagement Letter, Aldersgate receives a monthly advisory fee of $175,000 and is entitled to a restructuring completion fee of $3,500,000 upon the occurrence of a restructuring transaction, including the confirmation and consummation of a plan of reorganization. The Engagement Letter also provides for reimbursement of Aldersgate's reasonable out-of-pocket expenses. All fees are subject to review by this Court under Section 330 of the Bankruptcy Code.
3. In my capacity as Lead Managing Director at Aldersgate and the senior professional responsible for the Aldersgate engagement team serving the Debtors, I have been actively involved in all aspects of the Debtors' restructuring process since Aldersgate's initial retention, including the negotiation of the Restructuring Support Agreement (the "RSA") dated July 8, 2022, the preparation of the Disclosure Statement, and the development and analysis of the Plan. I have personal knowledge of the facts set forth in this Declaration or have acquired such knowledge through my review of documents and information made available to me in the course of my work for the Debtors. Unless otherwise indicated, the statements set forth herein are based upon my personal knowledge, my review of relevant documents, information provided to me by the Debtors' management and other professionals, or my opinion based upon my experience and knowledge.
B. Professional Background and Qualifications
4. I have more than eighteen years of professional experience in restructuring, financial advisory, and investment banking. I hold a Master of Business Administration degree from the Wharton School at the University of Pennsylvania, where I concentrated in Finance, and a Bachelor of Arts degree in Economics from Columbia University. I am a Chartered Financial Analyst (CFA) charterholder and a member of the CFA Institute and the CFA Society New York.
5. During my career, I have served as financial advisor or investment banker to debtors, official and ad hoc creditor committees, secured lenders, and other parties in interest in more than forty Chapter 11 proceedings across a broad range of industries, including manufacturing, industrial products, specialty chemicals, consumer products, and energy services. My advisory experience includes the preparation and review of going-concern valuations, liquidation analyses, feasibility analyses, and expert testimony in connection with plan confirmation hearings, contested valuation proceedings, and other bankruptcy-related matters. Prior to joining Aldersgate in 2014, I held positions in the restructuring advisory groups at Ostrander Consulting Group and Penrose Trust Bank
6. I have been qualified as an expert witness in bankruptcy courts in the Southern District of New York, the District of Delaware, the Eastern District of Virginia, the Southern District of Texas, and other jurisdictions. I am competent to testify on the matters set forth herein, and I offer the opinions in this Declaration based on my professional training, education, and experience.
C. Scope of Declaration
7. In connection with the Plan and the Disclosure Statement, I have prepared or supervised the preparation of the following analyses, each of which is set forth in or annexed to the Disclosure Statement (Dkt. 48), which was approved by this Court on August 10, 2022 (Dkt. 62):
(a) The Valuation Analysis of reorganized Crestline (Exhibit E to the Disclosure Statement);
(b) The Liquidation Analysis reflecting a hypothetical Chapter 7 liquidation scenario (Exhibit F to the Disclosure Statement); and
(c) The Feasibility Analysis of reorganized Crestline (Exhibit G to the Disclosure Statement).
8. This Declaration addresses: (a) the reorganized enterprise valuation of Crestline and the methodologies and assumptions underlying that valuation; (b) the liquidation analysis and the satisfaction of the "best interests of creditors" test under Section 1129(a)(7) of the Bankruptcy Code; (c) the feasibility of the Plan under Section 1129(a)(11) of the Bankruptcy Code; and (d) the conclusion that the Plan provides materially higher recoveries to all impaired classes of claims and interests than would a hypothetical Chapter 7 liquidation.
9. In forming the opinions expressed herein, I have reviewed and relied upon, among other things, the following:
(a) The Debtors' financial books and records, including audited financial statements for fiscal years 2019, 2020, and 2021, and unaudited interim financial statements for the first quarter of fiscal year 2022;
(b) Financial projections prepared by the Debtors' management (the "Management Projections"), covering the five-year period from fiscal year 2023 through fiscal year 2027;
(c) The First Lien Credit Agreement, dated as of October 13, 2017, among Crestline Packaging Solutions LLC, as borrower, CPS Holdings Inc., as parent guarantor, the lenders party thereto, and Ridgeline National Bank, N.A., as administrative agent and collateral agent (as amended, restated, supplemented, or otherwise modified from time to time, the "First Lien Credit Agreement");
(d) The Indenture, dated as of October 13, 2017, among Crestline Packaging Solutions LLC, as issuer, CPS Holdings Inc., as parent guarantor, and Continental Fiduciary Trust Company, as indenture trustee, governing the 9.75% Senior Secured Second Lien Notes due October 13, 2025 (the "Second Lien Notes Indenture");
(e) The Restructuring Support Agreement, dated as of July 8, 2022 (the "RSA"), among the Debtors, Thornfield Capital Partners LP ("Thornfield"), the Ad Hoc Group of First Lien Lenders, and the Ad Hoc Group of Second Lien Noteholders;
(f) Discussions with the Debtors' senior management, including Marcus J. Reinholdt, Chief Executive Officer, and Dana Kowalski, Chief Financial Officer, regarding the Debtors' historical operations, business plan, capital expenditure requirements, and forward-looking expectations;
(g) Publicly available industry and market data, including data from the Larkspur Strategy Partners, Ostrander Partners LLC, and Fenmore Services Inc., relating to the specialty packaging, industrial containers, and chemical packaging sectors; and
(h) Such other documents, data, and information as I deemed relevant and appropriate.
10. Throughout the course of this engagement, Aldersgate has worked closely with the Debtors' restructuring counsel, Calderwood & Harkness LLP (Colette Whitman, responsible partner), and the Debtors' tax advisors, Dralvecen Reyes Linley CPAs LLP & Associates LLP (Catherine Holtz, lead partner), in the preparation and analysis of the Plan, the Disclosure Statement, and the exhibits thereto.
II. OVERVIEW OF THE DEBTORS' BUSINESS AND CAPITAL STRUCTURE
A. Business Overview
11. Crestline Packaging Solutions LLC is a specialty manufacturer of industrial packaging and containment products, headquartered at 4710 Industrial Corridor Drive, Akron, Ohio 44308. Crestline's principal products include high-density polyethylene ("HDPE") drums, intermediate bulk containers ("IBCs"), steel pails, and specialty containment vessels. These products serve customers across the chemical, petrochemical, and agricultural sectors, providing essential packaging solutions for the storage, transport, and handling of liquid and dry chemicals, solvents, agricultural inputs, and other industrial materials.
12. Crestline was originally founded in 2007 and developed a strong regional reputation for quality and reliability in the specialty packaging sector. On October 13, 2017, Thornfield Capital Partners LP ("Thornfield"), a private equity sponsor, acquired Crestline through a leveraged buyout (the "LBO") at an enterprise value of approximately $410.0 million. Thornfield contributed approximately $163.0 million in equity, with the remainder of the acquisition consideration funded through the incurrence of approximately $247.0 million in funded debt, comprised of the First Lien Credit Facility and the Second Lien Notes, as described more fully below.
13. CPS Holdings Inc. is a Delaware corporation formed to serve as the direct parent holding company of Crestline in connection with the LBO. Thornfield holds 100% of the equity interests in CPS Holdings, which in turn holds 100% of the membership interests in Crestline. CPS Holdings has no independent operations or material assets other than its ownership interest in Crestline.
14. As of the Petition Date, Crestline operated four manufacturing plants, employing approximately 1,420 individuals in the aggregate:
(a) Plant 1 (Headquarters) — Akron, Ohio: Located at 4710 Industrial Corridor Drive, Akron, Ohio 44308. This facility serves as the Debtors' corporate headquarters and principal manufacturing facility for HDPE drum production. Plant 1 employs approximately 480 individuals and contains multiple extrusion and blow-molding production lines. The Akron facility encompasses approximately 285,000 square feet and is the Debtors' largest facility by both headcount and revenue contribution.
(b) Plant 2 — Evansville, Indiana: Located at 2255 Commerce Parkway, Evansville, Indiana 47725. This facility is dedicated to the manufacturing of intermediate bulk containers and steel pails. Plant 2 employs approximately 390 individuals and is a critical facility for serving the Debtors' agricultural sector customers in the Midwest and southern United States.
(c) Plant 3 — Baton Rouge, Louisiana: Located at 8100 River Road, Baton Rouge, Louisiana 70820. This facility specializes in the production of specialty containment vessels, including custom-engineered containment solutions for the petrochemical industry. Plant 3 employs approximately 310 individuals. Its proximity to the Gulf Coast refining and petrochemical corridor provides a significant geographic advantage in serving key customers.
(d) Plant 4 — Ravenna, Ohio: Located at 1480 State Route 59, Ravenna, Ohio 44266. This facility houses the Debtors' extrusion and secondary processing operations, providing raw materials and semi-finished components to Plant 1 and supporting other production needs across the Debtors' manufacturing network. Plant 4 employs approximately 240 individuals.
15. The Debtors' senior management team as of the Petition Date included: Marcus J. Reinholdt, Chief Executive Officer; Dana Kowalski, Chief Financial Officer; and Preston Yee, General Counsel and Corporate Secretary. Mr. Reinholdt has served as CEO since 2015, and Ms. Kowalski has served as CFO since 2018. Both executives have been instrumental in the development of the Management Projections and the negotiation of the RSA.
B. Historical Financial Performance
16. The Debtors experienced significant financial pressure in fiscal years 2020 and 2021 as a result of rapidly escalating resin costs, global supply chain disruptions, and the broader macroeconomic effects of the COVID-19 pandemic. These challenges adversely affected both revenue and profitability, as set forth below.
17. For fiscal year 2021, the Debtors reported consolidated revenue of approximately $312.6 million and consolidated EBITDA of approximately $38.4 million. Revenue declined approximately 18% from fiscal year 2020, driven principally by higher input costs that the Debtors were unable to fully pass through to customers under existing contractual arrangements, as well as volume declines attributable to customer destocking and supply chain-related production interruptions. EBITDA margins contracted materially as resin costs — the single largest component of the Debtors' cost of goods sold — increased by approximately 40% to 55% from pre-pandemic levels, depending on the specific resin grade.
18. Financial performance continued to deteriorate during the first quarter of fiscal year 2022. On a trailing twelve-month basis as of the end of Q1 2022 ("TTM Q1 2022"), the Debtors' consolidated EBITDA was approximately $29.1 million, reflecting continued margin compression and representing a decline of approximately 24.2% from fiscal year 2021 EBITDA of $38.4 million. This level of EBITDA was materially below the levels necessary to satisfy the financial covenants contained in the First Lien Credit Agreement.
C. Prepetition Capital Structure (as of the Petition Date — June 20, 2022)
19. As of the Petition Date, the Debtors' prepetition capital structure consisted of the following funded debt obligations:
(a) First Lien Revolving Credit Facility. Pursuant to the First Lien Credit Agreement, the Debtors had access to a $40.0 million senior secured first lien revolving credit facility. As of the Petition Date, $32.6 million was outstanding under the revolver. The revolving credit facility bore interest at a rate of SOFR plus 375 basis points and had a stated maturity date of October 13, 2022. Ridgeline National Bank, N.A. served as both administrative agent and collateral agent for the First Lien Credit Facility.
(b) First Lien Term Loan. The First Lien Credit Agreement also provided for a $175.0 million senior secured first lien term loan. As of the Petition Date, $158.7 million in principal was outstanding under the first lien term loan, reflecting scheduled amortization payments made since the closing of the LBO. The first lien term loan bore interest at a rate of SOFR plus 425 basis points, with a stated maturity date of October 13, 2024. Ridgeline National Bank, N.A. served as administrative agent.
(c) Total First Lien Secured Claims. Accordingly, total first lien secured claims as of the Petition Date aggregated approximately $191.3 million, consisting of $32.6 million outstanding under the revolving credit facility and $158.7 million outstanding under the first lien term loan.
(d) Second Lien Notes. Pursuant to the Second Lien Notes Indenture, the Debtors issued $60.0 million in aggregate principal amount of 9.75% Senior Secured Second Lien Notes due October 13, 2025 (CUSIP: 22761TAA3). As of the Petition Date, $56.0 million in principal amount of Second Lien Notes remained outstanding, with the remaining $4.0 million having been repurchased by the Debtors in open market transactions in 2019. Continental Fiduciary Trust Company served as indenture trustee under the Second Lien Notes Indenture. Accrued and unpaid interest on the Second Lien Notes as of the Petition Date totaled approximately $3.9 million, which amount includes default rate interest at an additional 2.00% per annum from and after the date of the Notice of Default (April 22, 2022). Accordingly, total Second Lien claims as of the Petition Date aggregated approximately $59.9 million.
20. In the aggregate, the Debtors' total funded debt as of the Petition Date was approximately $247.3 million ($32.6 million revolving credit facility + $158.7 million first lien term loan + $56.0 million Second Lien Notes principal), exclusive of accrued interest.
D. Events Leading to the Chapter 11 Filing
21. Section 7.11 of the First Lien Credit Agreement required the Debtors to maintain a maximum Total Net Debt to EBITDA leverage ratio not to exceed 5.75x, tested on a quarterly basis. As of the end of Q1 2022, the Debtors' actual leverage ratio was approximately 8.50x (calculated as $247.3 million of total funded debt divided by TTM Q1 2022 EBITDA of $29.1 million), resulting in a breach of the financial covenant by approximately 2.75 turns, or 47.8% above the permitted covenant threshold.
22. On April 22, 2022, Ridgeline National Bank, N.A., in its capacity as administrative agent under the First Lien Credit Agreement, delivered a Notice of Default to the Debtors, citing the breach of Section 7.11 of the First Lien Credit Agreement. The Notice of Default triggered a cross-default under Section 6.01(e) of the Second Lien Notes Indenture, resulting in the simultaneous default under the Second Lien Notes. Upon the delivery of the Notice of Default, default rate interest began to accrue on the Second Lien Notes at an additional 2.00% per annum over the stated coupon rate.
23. Following extensive negotiations among the Debtors, the administrative agent, and the consenting first lien lenders (collectively holding approximately 68% of the outstanding first lien term loan by principal amount), the parties executed a Forbearance Agreement dated May 18, 2022. The Forbearance Agreement provided for a 45-day forbearance period extending through July 2, 2022, during which the consenting lenders agreed to refrain from exercising remedies under the First Lien Credit Agreement. The forbearance period was subsequently extended by mutual agreement to July 15, 2022, to allow additional time for the negotiation and documentation of a comprehensive restructuring transaction.
24. On July 8, 2022, after extensive arm's-length negotiations facilitated by Aldersgate, the Debtors, CPS Holdings, Thornfield, the Ad Hoc Group of First Lien Lenders (represented by Hargrove, Mitchell & Saunders LLP), and the Ad Hoc Group of Second Lien Noteholders (represented by Pemberton & Locke LLP) executed the RSA, which set forth the terms of the consensual restructuring to be implemented through a prepackaged plan of reorganization.
25. The Debtors filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code on June 20, 2022 (the "Petition Date"). These Chapter 11 cases are being jointly administered under Case No. 22-51247.
III. SUMMARY OF PLAN TREATMENT BY CLASS
A. Classification and Treatment Overview
26. The Plan provides for the classification and treatment of claims against and interests in the Debtors as summarized below. A more complete description of the classification and treatment of claims and interests is set forth in Article III of the Plan (Dkt. 47). The following summary is qualified in its entirety by reference to the Plan.
27. Class 1 — Other Priority Claims. Class 1 consists of all claims entitled to priority under Section 507(a) of the Bankruptcy Code (other than administrative expense claims and priority tax claims, which are treated separately under the Plan). Holders of allowed Class 1 claims shall receive payment in full in cash on the later of the Effective Date and the date such claim becomes an allowed claim, or such other treatment as may be agreed between the Debtors and the holder of such claim. Estimated recovery: 100%. Class 1 is unimpaired under the Plan and is conclusively presumed to have accepted the Plan pursuant to Section 1126(f) of the Bankruptcy Code.
28. Class 2 — First Lien Secured Claims ($191.3 million). Class 2 consists of all claims arising under or in connection with the First Lien Credit Agreement, including claims under the revolving credit facility and the first lien term loan. In full and final satisfaction of all allowed Class 2 claims, each holder of an allowed Class 2 claim shall receive its pro rata share of: (a) 92% of the reorganized equity of Crestline Packaging Solutions LLC (the "Reorganized Equity"), issued on the Effective Date, subject to dilution by the Management Incentive Plan (as described below); and (b) $12.5 million in aggregate principal amount of new first lien take-back term loan debt (the "New First Lien Take-Back Term Loan"), as described in greater detail below. Based on Aldersgate's midpoint valuation, the value attributable to Class 2 holders is as follows: 92% of the midpoint reorganized equity value of $182.5 million equals approximately $167.9 million, plus $12.5 million in New First Lien Take-Back Term Loan debt, for a total recovery of approximately $180.4 million on $191.3 million of allowed claims, or approximately 94.3% at midpoint. In a mid-low scenario, estimated recovery is approximately 72%. Class 2 is impaired under the Plan.
29. Class 3 — Second Lien Secured Claims ($59.9 million, including $56.0 million principal and approximately $3.9 million accrued interest). Class 3 consists of all claims arising under or in connection with the Second Lien Notes Indenture, including accrued and unpaid interest (including default rate interest). In full and final satisfaction of all allowed Class 3 claims, each holder of an allowed Class 3 claim shall receive its pro rata share of: (a) 8% of the Reorganized Equity, issued on the Effective Date, subject to dilution by the Management Incentive Plan; and (b) warrants to purchase an additional 5% of the Reorganized Equity at a strike price equal to the Plan equity value (i.e., the midpoint reorganized equity value of $182.5 million), also subject to dilution by the Management Incentive Plan. Based on Aldersgate's midpoint valuation, the value of 8% of reorganized equity is approximately $14.6 million (8% × $182.5 million), representing an estimated recovery of approximately 24.4% of allowed Class 3 claims on account of the equity distribution alone, or approximately 12% on a risk-adjusted basis inclusive of the warrants' inherent optionality value. Class 3 is impaired under the Plan.
30. Class 4 — General Unsecured Claims ($14.8 million). Class 4 consists of all allowed general unsecured claims against the Debtors that are not otherwise classified under the Plan. In full and final satisfaction of all allowed Class 4 claims, each holder shall receive its pro rata share of a cash distribution pool in the amount of $1.5 million (the "GUC Cash Pool"), payable on or as soon as reasonably practicable after the Effective Date. Based on estimated allowed Class 4 claims of $14.8 million, the estimated recovery for Class 4 is approximately 10.1% ($1.5 million ÷ $14.8 million). Class 4 is impaired under the Plan.
31. Class 5 — Intercompany Claims. Class 5 consists of all intercompany claims among the Debtors and their affiliates. Intercompany claims shall be reinstated, set off, contributed to capital, or otherwise settled or cancelled at the discretion of the Debtors (with the consent of the Ad Hoc Group of First Lien Lenders) on or before the Effective Date. Class 5 is unimpaired or impaired, as applicable, and each holder of an intercompany claim is deemed to have accepted or rejected the Plan, as applicable.
32. Class 6 — Existing Equity Interests (Thornfield Capital Partners LP). Class 6 consists of all existing equity interests in CPS Holdings, including all issued and outstanding shares, membership interests, partnership interests, warrants, options, or rights to acquire any such interests. On the Effective Date, all existing equity interests in CPS Holdings and Crestline shall be cancelled, released, and extinguished, and the holders thereof shall receive no distribution or other consideration under the Plan. Estimated recovery: 0%. Class 6 is impaired under the Plan and is deemed to have rejected the Plan pursuant to Section 1126(g) of the Bankruptcy Code.
B. Management Incentive Plan
33. The Plan provides for the establishment of a management incentive plan (the "MIP") pursuant to which up to 10% of the Reorganized Equity shall be reserved for issuance to eligible participants following the Effective Date. The specific participants, award levels, and terms of the MIP shall be determined by the board of directors or board of managers (as applicable) of reorganized Crestline, in consultation with the required parties under the Plan. The MIP awards shall be subject to the following vesting schedule: (a) 50% shall vest on a time-based schedule, with a three-year cliff vesting period from the date of grant; and (b) 50% shall vest on a performance-based schedule, tied to the achievement of specified EBITDA targets to be established by the reorganized board. The MIP will dilute all classes of Reorganized Equity (including the equity distributed to Classes 2 and 3) on a pro rata basis.
C. New First Lien Take-Back Term Loan
34. On the Effective Date, reorganized Crestline shall enter into a new first lien term loan credit facility (the "New First Lien Take-Back Term Loan") on the following terms:
(a) Aggregate Principal Amount: $12,500,000.
(b) Interest Rate: SOFR plus 550 basis points per annum, with a SOFR floor of 1.00%.
(c) Maturity Date: Five years from the Effective Date, anticipated to be August 31, 2028.
(d) Amortization: 1.00% per annum of original principal amount ($125,000 per year), payable in equal quarterly installments of $31,250, with the remaining balance due at maturity.
(e) Lenders: The New First Lien Take-Back Term Loan shall be allocated pro rata to holders of allowed Class 2 claims who elect to participate.
(f) Collateral: First-priority lien on and security interest in substantially all assets of reorganized Crestline, subject to customary permitted liens and exceptions.
(g) Administrative Agent: Ridgeline National Bank, N.A.
(h) Other Terms: The New First Lien Take-Back Term Loan shall contain customary representations, warranties, covenants (including maintenance and incurrence-based financial covenants), and events of default, as set forth in the term sheet annexed to the Plan as Exhibit D.
IV. VALUATION ANALYSIS OF REORGANIZED CRESTLINE
A. Methodologies Employed
35. In order to estimate the reorganized enterprise value of Crestline on a going-concern basis as of the anticipated Effective Date, Aldersgate employed two widely accepted valuation methodologies:
(a) discounted Cash Flow ("DCF") Analysis. Aldersgate performed a DCF analysis based on the Management Projections for the five-year period from fiscal year 2023 through fiscal year 2027. The DCF analysis projects unlevered free cash flows over the projection period and discounts them to present value using an estimated weighted average cost of capital ("WACC"). In addition, the DCF analysis estimates the terminal value of the enterprise at the end of the projection period using both a perpetuity growth method and an exit multiple method. The DCF methodology is Aldersgate's primary valuation methodology for this engagement, as it captures the specific cash flow characteristics of the Debtors' business and the anticipated trajectory of their financial performance following emergence from Chapter 11.
(b) Comparable Company Trading Multiples Analysis. As a corroborative check on the DCF-derived valuation, Aldersgate performed a comparable company analysis using observed trading multiples of selected publicly traded companies in the specialty packaging, industrial containers, and chemical packaging sectors. This methodology applies relevant enterprise value-to-EBITDA ("TEV/EBITDA") multiples from comparable companies to the Debtors' projected EBITDA to derive an implied enterprise value range.
36. Both the DCF methodology and the comparable company methodology are standard, well-established, and widely accepted approaches for valuing going-concern enterprises in the context of Chapter 11 plan confirmation proceedings. Courts in this and other jurisdictions have routinely considered and relied upon these methodologies in connection with plan confirmation and related contested valuation matters.
B. Key Assumptions and Inputs — DCF Analysis
37. The DCF analysis is based on the Management Projections, which cover the five-year period from fiscal year 2023 through fiscal year 2027. Aldersgate reviewed and assessed the reasonableness of the Management Projections, including the underlying assumptions with respect to revenue growth, operating expenses, capital expenditures, working capital requirements, and applicable tax rates. The key assumptions and inputs to the DCF analysis are summarized below.
38. Revenue Projections. Revenue projections are based on management's business plan, which reflects the expected stabilization of resin costs from the peak levels experienced during fiscal year 2021 and the first half of fiscal year 2022, the normalization of global supply chain conditions, and modest organic growth consistent with the Debtors' market position and customer relationships. Management's revenue projections also incorporate expected improvements in customer pricing resulting from contractual pass-through mechanisms that are anticipated to take effect as existing contracts are renewed or renegotiated in fiscal year 2023 and beyond.
39. EBITDA Projections. Projected fiscal year 2023 EBITDA is $36.5 million, reflecting a meaningful recovery from TTM Q1 2022 EBITDA of $29.1 million and approaching the Debtors' fiscal year 2021 EBITDA of $38.4 million. This recovery is driven principally by the normalization of input costs, improved pricing, and anticipated operational efficiency initiatives. Aldersgate has evaluated the reasonableness of this projection and believes it is achievable based on the Debtors' historical operating performance, current market conditions, and management's track record.
40. Capital Expenditure Assumptions. The Management Projections include annual capital expenditure estimates sufficient to maintain the Debtors' four manufacturing facilities in good operating condition and to undertake selective growth investments. Capital expenditure levels are consistent with the Debtors' historical spending patterns, adjusted for known requirements.
41. Working Capital Requirements. Working capital projections reflect the Debtors' historical working capital cycle, including days sales outstanding, days inventory on hand, and days payable outstanding, with appropriate adjustments for anticipated changes in revenue levels and business mix.
42. Tax Rate Assumptions. The applicable tax rates used in the DCF analysis were reviewed and validated by Aldersgate in consultation with Dralvecen Reyes Linley CPAs LLP & Associates LLP, the Debtors' tax advisors.
43. Weighted Average Cost of Capital. The WACC applied in the DCF analysis was estimated based on the capital asset pricing model ("CAPM") approach, incorporating an appropriate risk-free rate, equity risk premium, size premium, company-specific risk premium, and target capital structure for the reorganized entity. Aldersgate also considered the cost of debt financing consistent with the terms of the New First Lien Take-Back Term Loan.
44. Terminal Value. The terminal value of the enterprise at the end of the five-year projection period was estimated using both a perpetuity growth method (applying a long-term growth rate to the normalized free cash flow in the terminal year) and an exit multiple method (applying an appropriate TEV/EBITDA multiple to the terminal year EBITDA). The two approaches yielded convergent results, providing Aldersgate with confidence in the terminal value estimate.
45. Sensitivity Analysis. Aldersgate performed a sensitivity analysis on the DCF valuation by varying the discount rate (WACC) and the terminal growth rate (in the case of the perpetuity growth method) and exit multiple (in the case of the exit multiple method). This sensitivity analysis informed the valuation range set forth below.
C. Key Assumptions and Inputs — Comparable Company Analysis
46. The comparable company analysis involved the identification of publicly traded companies operating in the specialty packaging, industrial containers, and chemical packaging sectors that share relevant characteristics with the Debtors' business. The selected comparable companies were evaluated based on factors including product mix, end-market exposure, geographic footprint, revenue scale, and profitability metrics.
47. Aldersgate observed TEV/EBITDA trading multiples for the selected comparable companies and applied a range of multiples deemed appropriate for the Debtors to Crestline's projected fiscal year 2023 EBITDA of $36.5 million. In applying the observed multiples, Aldersgate made appropriate adjustments to account for differences between the comparable companies and Crestline with respect to size, market position, growth profile, customer concentration, and capital structure considerations. In particular, Aldersgate applied a discount to the median observed comparable company multiple to account for Crestline's smaller scale, its private company status, and the uncertainty inherent in the Debtors' financial recovery trajectory.
D. Valuation Conclusions
48. Based on the DCF analysis and the comparable company analysis described above, Aldersgate estimates the reorganized enterprise value of Crestline as follows:
(a) Reorganized Enterprise Value (midpoint): $195.0 million.
(b) Reorganized Enterprise Value (range): $180.0 million to $210.0 million.
(c) Implied TEV/EBITDA Multiple (on projected FY2023 EBITDA of $36.5 million): Approximately 5.3x at midpoint (range of approximately 4.9x to 5.8x).
49. The reorganized equity value is derived by subtracting the funded debt of the reorganized entity from the enterprise value:
50. The implied value allocations to the impaired secured classes under the Plan, based on the midpoint reorganized equity value of $182.5 million, are as follows:
(a) Class 2 — First Lien Secured Claims (92% of Reorganized Equity): 92% × $182.5 million = $167.9 million in equity value, plus $12.5 million in New First Lien Take-Back Term Loan debt, for a total recovery of $180.4 million on $191.3 million of allowed claims, representing an estimated recovery of approximately 94.3% at midpoint.
(b) Class 3 — Second Lien Secured Claims (8% of Reorganized Equity): 8% × $182.5 million = $14.6 million in equity value, plus warrants for an additional 5% of Reorganized Equity at a strike price equal to the Plan equity value of $182.5 million. The warrants provide meaningful upside participation if the reorganized enterprise outperforms projections. On the equity distribution alone, the estimated recovery is approximately 24.4% of allowed claims.
51. The foregoing equity allocations are subject to dilution by the MIP (10% equity pool), which will dilute all classes of Reorganized Equity on a pro rata basis upon issuance of MIP awards.
E. Valuation Limitations and Caveats
52. Aldersgate's valuation is based on information available as of the date of the analysis (July 2022) and the assumptions described herein and in the Valuation Analysis annexed to the Disclosure Statement (Exhibit E). The valuation involves inherent uncertainty, and the actual performance of the reorganized Debtors may differ materially from the projections underlying the analysis. The valuation set forth herein does not constitute an opinion as to the fairness, from a financial point of view, of the consideration to be received by any party under the Plan. The valuation was prepared solely for the purpose of the Disclosure Statement and Plan confirmation and should not be relied upon for any other purpose. Estimates of value do not purport to be appraisals and do not necessarily reflect the prices at which the Reorganized Equity or the reorganized Debtors' business or assets could actually be sold or the prices at which any securities may trade in the future.
V. LIQUIDATION ANALYSIS (CHAPTER 7 SCENARIO)
A. Purpose and Legal Standard
53. Section 1129(a)(7) of the Bankruptcy Code — commonly referred to as the "best interests of creditors" test — requires that, with respect to each impaired class of claims or interests that has not accepted the Plan, each holder of a claim or interest in such class receive or retain under the Plan 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 Debtors were liquidated under Chapter 7 of the Bankruptcy Code.
54. Although all impaired classes have voted to accept the Plan (as discussed further below), Aldersgate has prepared a comprehensive liquidation analysis to demonstrate compliance with Section 1129(a)(7) with respect to each impaired class. The liquidation analysis is included as Exhibit F to the Disclosure Statement.
B. Methodology.
55. In preparing the liquidation analysis, Aldersgate estimated the net proceeds that would be available for distribution to creditors in a hypothetical scenario in which the Debtors' Chapter 11 cases were converted to cases under Chapter 7 of the Bankruptcy Code and a Chapter 7 trustee was appointed to liquidate the Debtors' assets. The analysis reflects an orderly liquidation scenario (as opposed to a forced or fire-sale liquidation), which Aldersgate believes is the most appropriate assumption given the nature of the Debtors' assets and the likely timeline for a Chapter 7 wind-down.
56. Aldersgate estimated recovery rates for each major category of the Debtors' assets, including:
(a) Accounts Receivable. Aldersgate applied estimated recovery rates to the Debtors' trade accounts receivable based on the aging, quality, and collectibility of the receivables portfolio, taking into account the likely disruption to customer relationships that would result from a Chapter 7 liquidation.
(b) Inventory. Aldersgate estimated recoveries on the Debtors' raw materials, work-in-process, and finished goods inventory, applying discounts to book value to reflect the costs and uncertainties associated with liquidating specialty manufacturing inventory through auction, bulk sale, or other disposition channels.
(c) Machinery and Equipment. Aldersgate estimated the orderly liquidation value of the Debtors' manufacturing equipment across all four plants, including extrusion and blow-molding equipment, IBC production machinery, steel fabrication equipment, and related production assets. Recovery rates were informed by Aldersgate's experience with comparable asset dispositions in the specialty manufacturing sector and available market data.
(d) Real Property and Leasehold Interests. Aldersgate assessed the estimated realizable value of any owned real property and the estimated value of the Debtors' leasehold interests, net of applicable rejection damages and lease termination costs.
(e) intellectual Property and Other Intangible Assets. Aldersgate estimated the recoverable value, if any, of the Debtors' intellectual property portfolio, including trademarks, trade names, proprietary manufacturing processes, and customer relationships, recognizing that the value of such intangible assets is significantly diminished in a liquidation context.
57. From the estimated gross liquidation proceeds, Aldersgate deducted estimated Chapter 7 administrative costs and other priority claims, including:
(a) Chapter 7 trustee fees, calculated at the statutory commission rates set forth in Section 326 of the Bankruptcy Code;
(b) Professional fees of the Chapter 7 trustee's counsel and other professionals retained by the trustee;
(c) Wind-down costs, including costs of operating the Debtors' business for a limited period during the liquidation process;
(d) Employee claims, including accrued wages, benefits, and potential liability under the Worker Adjustment and Retraining Notification Act ("WARN Act"), 29 U.S.C. §§ 2101–2109, which could be triggered by a cessation of operations without the required 60-day advance notice to the Debtors' approximately 1,420 employees;
(e) Priority tax claims; and
(f) All other administrative expense claims and priority claims entitled to satisfaction ahead of general unsecured claims.
C. Estimated Liquidation Value
58. Based on the methodology described above, Aldersgate estimates that the net liquidation value available for distribution to creditors in a hypothetical Chapter 7 case would fall within the following range:
59. The estimated net liquidation value at midpoint of approximately $104.4 million is significantly lower than the reorganized enterprise value of $195.0 million at midpoint, reflecting the substantial destruction of going-concern value that would result from a Chapter 7 liquidation. The differential is attributable to the loss of the Debtors' customer relationships and contracts, the disruption to operations, the significant costs of the liquidation process (including WARN Act exposure for approximately 1,420 employees), the reduced realizable value of the Debtors' fixed assets in a distressed disposition context, and the elimination of the Debtors' intangible value as a going concern.
D. Estimated Recoveries in Liquidation by Class
60. Based on the estimated net liquidation value at midpoint and the absolute priority rule, Aldersgate estimates that creditor recoveries in a hypothetical Chapter 7 liquidation would be as follows:
(a) Class 1 — Other Priority Claims: Estimated to be paid in full from liquidation proceeds, assuming sufficient proceeds remain after satisfaction of administrative expense claims. Recovery: 100%.
(b) Class 2 — First Lien Secured Claims ($191.3 million): At the midpoint estimated net liquidation value of $104.4 million, after satisfaction of all claims senior to Class 2 claims (including administrative expense claims and priority claims), the estimated recovery for Class 2 is approximately $104.4 million on $191.3 million of allowed claims, or approximately 54.6%. Holders of Class 2 claims would hold substantial deficiency claims aggregating approximately $86.9 million.
(c) Class 3 — Second Lien Secured Claims ($59.9 million): The estimated net liquidation value is insufficient to satisfy Class 2 claims in full. Accordingly, no collateral value remains available for distribution to Class 3 holders on account of their secured claims. Recovery: $0, or 0%.
(d) Class 4 — General Unsecured Claims ($14.8 million): After satisfaction of all senior claims, no proceeds are estimated to be available for distribution to holders of general unsecured claims. Recovery: $0, or 0%.
(e) Class 5 — Intercompany Claims: No recovery.
(f) Class 6 — Existing Equity Interests: No recovery.
E. Comparison: Plan Recovery vs. Liquidation Recovery
61. The following table compares the estimated recoveries for each impaired class under the Plan with the estimated recoveries that such class would receive in a hypothetical Chapter 7 liquidation:
62. As the foregoing table demonstrates, the Plan provides materially higher recoveries to every impaired class of claims and interests than would a hypothetical Chapter 7 liquidation. Specifically:
(a) Class 2 (First Lien Secured Claims): Under the Plan, Class 2 holders are estimated to recover approximately 94.3% of their allowed claims at midpoint, compared to approximately 54.6% in a Chapter 7 liquidation — an incremental recovery of approximately $76.0 million, or 39.7 percentage points.
(b) Class 3 (Second Lien Secured Claims): Under the Plan, Class 3 holders receive 8% of reorganized equity (valued at approximately $14.6 million at midpoint) plus warrants for additional equity upside, compared to a recovery of $0 in a Chapter 7 liquidation.
(c) Class 4 (General Unsecured Claims): Under the Plan, Class 4 holders receive a pro rata share of the $1.5 million GUC Cash Pool, representing an estimated recovery of approximately 10.1%, compared to a recovery of $0 in a Chapter 7 liquidation.
63. Based on the foregoing, Aldersgate concludes that the Plan satisfies the best interests of creditors test under Section 1129(a)(7) of the Bankruptcy Code, as each holder of an impaired claim or interest will receive under the Plan at least as much as it would receive in a hypothetical Chapter 7 liquidation.
VI. FEASIBILITY ANALYSIS (§ 1129(a)(11))
A. Legal Standard
64. Section 1129(a)(11) of the Bankruptcy Code requires that confirmation 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." This requirement is commonly referred to as the "feasibility" test. To satisfy this test, Aldersgate has analyzed whether the reorganized Debtors will have sufficient cash flow and liquidity to meet all of their obligations under the Plan, both on and after the Effective Date, without risk of subsequent liquidation or further reorganization.
B. Financial Projections — Reorganized Crestline
65. The feasibility analysis is based on the Management Projections for the reorganized Debtors covering the five-year period from fiscal year 2023 through fiscal year 2027. The Management Projections reflect the Debtors' anticipated financial performance following their emergence from Chapter 11, taking into account the substantially deleveraged capital structure contemplated by the Plan, the normalization of operating conditions, and the Debtors' business plan as endorsed by management and reviewed by Aldersgate.
66. Revenue Projections. The Management Projections reflect stabilization and modest growth in the specialty packaging market, consistent with industry forecasts and the Debtors' competitive position. Revenue projections incorporate expected recovery in supply chain conditions, normalization of resin pricing, and the benefits of contractual repricing mechanisms with key customers. Management anticipates achieving a revenue trajectory that stabilizes in fiscal year 2023 and returns to modest growth in fiscal years 2024 through 2027, driven by organic volume growth, improved pricing, and selective capacity investments.
67. Projected FY2023 EBITDA. As discussed in Section IV above, projected EBITDA for fiscal year 2023 is $36.5 million, reflecting a substantial recovery from the depressed TTM Q1 2022 EBITDA of $29.1 million. The projected EBITDA growth trajectory over the five-year period is consistent with the Debtors' historical operating performance and the anticipated normalization of market conditions.
68. Capital Expenditures. The Management Projections include capital expenditure requirements for both maintenance and selective growth across the Debtors' four manufacturing facilities. Capital expenditures are projected at levels consistent with the Debtors' historical spending patterns and the requirements identified by management for maintaining production capacity, improving operational efficiency, and complying with applicable environmental, health, and safety regulations.
69. Working Capital. Working capital needs are modeled consistent with the Debtors' historical working capital cycle and expected changes in revenue levels, customer mix, and supplier payment terms. The reorganized Debtors' working capital requirements are expected to be manageable and well within the range supported by projected operating cash flows.
C. Debt Service Capacity
70. The reorganized Debtors' only funded debt obligation will be the New First Lien Take-Back Term Loan in the aggregate principal amount of $12.5 million. The debt service requirements associated with this facility are modest:
(a) Annual Amortization: $125,000 per annum (1.00% of original principal), payable in quarterly installments of $31,250.
(b) Annual Interest Expense: Estimated at approximately $0.9 million to $1.1 million per annum, depending on prevailing SOFR rates (based on an interest rate of SOFR plus 550 basis points, with a SOFR floor of 1.00%, applied to a principal balance of $12.5 million).
(c) Total Annual Debt Service (Principal + Interest): Estimated at approximately $1.0 million to $1.2 million per annum — a fraction of the reorganized Debtors' projected annual EBITDA and free cash flow generation.
(d) Maturity: The New First Lien Take-Back Term Loan matures on August 31, 2028, five years from the anticipated Effective Date, providing the reorganized Debtors with an extended runway to refinance or repay the facility from operating cash flows.
71. The reorganized Debtors' leverage profile following emergence from Chapter 11 will be dramatically improved. The reorganized leverage ratio, calculated as New Take-Back Debt divided by projected fiscal year 2023 EBITDA, will be approximately 0.34x ($12.5 million ÷ $36.5 million). This compares to a prepetition leverage ratio of approximately 8.50x ($247.3 million ÷ $29.1 million), representing a reduction in leverage of approximately 8.16 turns, or a 96% decrease. The reorganized capital structure will be well within sustainable levels for a specialty manufacturing business of the Debtors' size and profile, providing substantial headroom against downside scenarios.
D. Liquidity Analysis
72. The reorganized Debtors are projected to maintain adequate cash balances following the Effective Date to fund ongoing operations, debt service, capital expenditures, and Plan distributions (including the $1.5 million GUC Cash Pool). The Debtors' projected post-emergence operating cash flows are more than sufficient to cover all anticipated cash needs without reliance on additional external financing beyond the New First Lien Take-Back Term Loan.
73. Aldersgate also analyzed the reorganized Debtors' liquidity position under stress scenarios, including cases in which revenue and EBITDA underperform the Management Projections by specified percentages. Even under the stress scenarios modeled, the reorganized Debtors are projected to maintain an adequate liquidity cushion sufficient to meet all obligations as they become due, including debt service on the New First Lien Take-Back Term Loan.
E. Key Assumptions and Risks to Feasibility
74. Aldersgate performed sensitivity analyses on the Management Projections to evaluate the impact of adverse scenarios on the reorganized Debtors' financial performance and liquidity. The key risks and assumptions considered in the feasibility analysis include:
(a) Resin Price Volatility. Resin costs represent the single largest component of the Debtors' cost of goods sold, and significant fluctuations in resin pricing could adversely affect margins. The Management Projections assume a normalization of resin pricing from peak levels, which Aldersgate believes is a reasonable assumption based on current market trends and available industry data.
(b) Macroeconomic Conditions. A broader economic downturn or recession could reduce demand for the Debtors' products across the chemical, petrochemical, and agricultural sectors. The sensitivity analyses modeled the impact of reduced demand scenarios on the reorganized Debtors' cash flows.
(c) Customer Concentration. The Debtors derive a meaningful portion of their revenue from a relatively concentrated customer base. The loss of one or more key customer relationships could adversely affect revenue and profitability. Management expects that the Debtors' long-standing customer relationships, quality reputation, and competitive pricing will support customer retention through and after the restructuring.
(d) Key Contract Assumptions. The feasibility analysis assumes the continued operation of all four manufacturing plants and the retention of key employees. It further assumes the assumption by the reorganized Debtors of the following key executory contracts: (i) the resin supply agreement with Northstar Polymers Inc. (five-year agreement dated March 1, 2019, providing for the supply of HDPE and other resins at negotiated pricing); (ii) the equipment lease with Meridian Industrial Leasing Corp. (monthly lease payment of $87,500 for certain production equipment at the Evansville facility); and (iii) the warehouse lease with Benchmark Real Estate Holdings LLC (monthly lease payment of $42,000 for auxiliary warehouse space in Akron, Ohio, with a cure amount of $126,000 to be paid on the Effective Date).
(e) Employee Retention. The Management Projections assume the retention of the Debtors' skilled workforce, including key management personnel, production supervisors, and technical staff across all four plants. The MIP and the overall stability of the reorganized enterprise are expected to support retention efforts.
F. Feasibility Conclusion
75. Based on Aldersgate's analysis, as set forth in the Feasibility Analysis annexed to the Disclosure Statement (Exhibit G) and summarized herein, the reorganized Debtors are projected to generate sufficient cash flow to meet all obligations under the Plan, including debt service on the New First Lien Take-Back Term Loan, payment of the GUC Cash Pool, capital expenditure requirements, working capital needs, and all other operating expenses.
76. The significant deleveraging achieved through the Plan — from approximately $247.3 million of total funded debt prepetition to $12.5 million of funded debt post-emergence — provides the reorganized Debtors with a sustainable capital structure that is well-positioned to withstand adverse operating conditions and market volatility. The reorganized leverage ratio of approximately 0.34x is firmly within sustainable levels for a specialty manufacturing business of the Debtors' size and profile.
77. Accordingly, it is my opinion, based on my professional experience and the analyses described herein, that confirmation of the Plan is not likely to be followed by the liquidation of, or the need for further financial reorganization of, the reorganized Debtors. The Plan satisfies the feasibility requirement of Section 1129(a)(11) of the Bankruptcy Code.
VII. ADDITIONAL OBSERVATIONS IN SUPPORT OF CONFIRMATION
A. Voting Results
78. The Declaration of Andrew T. Prescott of Pinnacle Claims Administration LLC Regarding Tabulation of Votes on the Prepackaged Plan of Reorganization (Dkt. 71) (the "Tabulation Declaration") confirms that all impaired classes entitled to vote on the Plan have voted to accept the Plan in accordance with the requirements of Section 1126(c) of the Bankruptcy Code. Specifically:
(a) Class 2 — First Lien Secured Claims: Holders representing 94.7% in amount and 87.5% in number of the claims voted in such class voted to accept the Plan, exceeding the statutory thresholds of two-thirds in amount and more than one-half in number of claims required by Section 1126(c).
(b) Class 3 — Second Lien Secured Claims: Holders representing 89.2% in amount and 78.6% in number of the claims voted in such class voted to accept the Plan, exceeding the statutory thresholds.
(c) Class 4 — General Unsecured Claims: Holders representing 76.3% in amount and 68.4% in number of the claims voted in such class voted to accept the Plan, exceeding the statutory thresholds.
79. The broad creditor support reflected in these voting results is a testament to the favorable economics of the Plan relative to the available alternatives. The overwhelming acceptance of the Plan by all voting classes confirms the reasonableness of the Plan's treatment of claims and the overall value proposition offered to creditors.
B. Comparison to Status Quo and Alternative Scenarios
80. Aldersgate considered several alternative scenarios in evaluating the Plan, including: (a) continued forbearance and an out-of-court restructuring; (b) a freefall or prearranged (as opposed to prepackaged) Chapter 11 case; and (c) the Chapter 7 liquidation scenario discussed in Section V above.
81. Continued Forbearance / Out-of-Court Restructuring. Given the magnitude of the leverage covenant breach (8.50x versus the 5.75x covenant threshold) and the approaching maturity of the revolving credit facility on October 13, 2022, a continued forbearance or out-of-court restructuring was not viable. The severity of the financial covenant default and the rapidly approaching debt maturities would have required a comprehensive balance sheet restructuring that could not have been effectuated outside of a court-supervised process, particularly given the multi-layered capital structure and the involvement of dispersed second lien noteholders.
82. Freefall or Prearranged Chapter 11. A freefall or prearranged Chapter 11 process — as opposed to the prepackaged process actually employed — would likely have resulted in significantly higher administrative costs, a substantially longer case duration, and greater operational disruption. A longer Chapter 11 case would have exposed the Debtors to the risks of customer attrition, supplier uncertainty, and employee departures, all of which would erode enterprise value and diminish recoveries for all stakeholders. In addition, the uncertainty associated with a non-prepackaged case would have made it difficult to maintain the stability of the Debtors' manufacturing operations and customer relationships.
83. Prepackaged Plan — Efficiency and Value Preservation. The prepackaged plan structure employed by the Debtors has minimized the time and costs associated with the Chapter 11 process. The Debtors filed their Chapter 11 petitions on June 20, 2022, and anticipate an Effective Date of approximately September 30, 2022, resulting in a total in-court period of approximately 102 days. This abbreviated timeline has been critical to preserving enterprise value and maintaining the confidence of the Debtors' customers, suppliers, and employees.
84. Total professional fees incurred in these Chapter 11 cases are estimated at approximately $9.3 million, a figure that is modest relative to the Debtors' enterprise value and total funded debt and that reflects the efficiency of the prepackaged restructuring process. By comparison, a freefall Chapter 11 case of comparable complexity could be expected to generate substantially higher professional fees and administrative expenses, reducing the pool of value available for distribution to creditors.
C. DIP Financing
85. To ensure adequate liquidity throughout the Chapter 11 cases, the Debtors obtained a $30.0 million senior secured superpriority debtor-in-possession revolving credit facility (the "DIP Facility") with Ridgeline National Bank, N.A. serving as administrative agent. The DIP Facility was approved by this Court on an interim basis on June 24, 2022 (Dkt. 14), and on a final basis on July 18, 2022 (Dkt. 39).
86. The key terms of the DIP Facility are as follows:
(a) Commitment: $30.0 million revolving credit facility.
(b) Interest Rate: SOFR plus 500 basis points.
(c) Commitment Fee: $450,000 (1.50% of the commitment amount).