1006-00002 · Crestline Packaging Solutions LLC · Petition and First Day

kowalski-first-day-declaration.docx DOCUMENT Finance & Banking

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UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF OHIO EASTERN DIVISION

¹ The Debtors in these Chapter 11 cases, together with the last four digits of each Debtor's federal tax identification number, are: Crestline Packaging Solutions LLC (2094) and CPS Holdings Inc. (1657). The location of the Debtors' corporate headquarters and the service address for the Debtors in these Chapter 11 cases is 4710 Industrial Corridor Drive, Akron, OH 44308.

DECLARATION OF DANA KOWALSKI, CHIEF FINANCIAL OFFICER OF CRESTLINE PACKAGING SOLUTIONS LLC, IN SUPPORT OF DEBTORS' FIRST DAY MOTIONS

Filed: June 20, 2022

I. INTRODUCTION AND PRELIMINARY STATEMENT

1. I, Dana Kowalski, am the Chief Financial Officer of Crestline Packaging Solutions LLC ("CPS" or "Crestline"). I am over eighteen (18) years of age, competent to testify, and make this declaration under penalty of perjury pursuant to 28 U.S.C. § 1746. I submit this declaration (this "Declaration") in support of the voluntary petitions for relief filed by CPS and CPS Holdings Inc. (together, the "Debtors") under Chapter 11 of Title 11 of the United States Code (the "Bankruptcy Code") on June 20, 2022 (the "Petition Date"), and in support of the Debtors' first day motions and applications (collectively, the "First Day Motions") filed contemporaneously herewith.

2. I have served as CFO of CPS since March 2019. Prior to my appointment as CFO, I served in various finance and accounting roles within CPS beginning in 2015, including Senior Vice President of Finance and Controller. In these capacities, I have developed an extensive and detailed understanding of the Debtors' business operations, financial condition, capital structure, and the circumstances giving rise to the commencement of these Chapter 11 cases.

3. I am authorized to submit this Declaration on behalf of both Debtors. CPS Holdings Inc. ("CPS Holdings"), a Delaware corporation, is the direct parent entity of CPS and the sole holder of CPS's equity interests. CPS Holdings has no independent operations, no employees, and no assets other than its equity interest in CPS. Both entities are filing for relief under Chapter 11 of the Bankruptcy Code to effectuate the comprehensive financial restructuring described herein.

4. The purpose of this Declaration is to provide the Court with factual support for each of the First Day Motions filed by the Debtors on the Petition Date. Unless otherwise indicated, all facts stated in this Declaration are based on my personal knowledge, my review of relevant documents, the Debtors' books and records, or information provided to me by other officers, employees, and retained professionals of the Debtors. If called as a witness, I could and would testify competently to the matters set forth herein.

5. This Declaration supports the following First Day Motions:

(a) Motion for Joint Administration of the Chapter 11 cases of CPS (Case No. 22-51247) and CPS Holdings (Case No. 22-51248) pursuant to Bankruptcy Rule 1015(b);

(b) Motion to Approve Claims and Noticing Agent — specifically, the Debtors' application to retain Pinnacle Claims Administration LLC as claims and noticing agent pursuant to 28 U.S.C. § 156(c);

(c) Motion to Pay Critical Vendors — the Debtors' motion for authority to pay prepetition claims of critical vendors in an aggregate amount not to exceed $6.8 million;

(d) Motion to Pay Employee Wages and Benefits — the Debtors' motion for authority to honor prepetition obligations to employees for wages, salaries, commissions, health and welfare benefits, retirement plan contributions, and related obligations; and

(e) Motion for Interim and Final Approval of DIP Financing — the Debtors' motion seeking interim and final approval of a $30.0 million senior secured superpriority revolving debtor-in-possession credit facility.

6. In support of these motions, I describe below the Debtors' business operations, corporate structure, financial condition, capital structure, and the events that precipitated the filing of these Chapter 11 cases. I also set forth the factual basis supporting each of the First Day Motions and explain why the relief sought therein is necessary and appropriate to preserve the Debtors' going-concern value and facilitate an orderly and expeditious restructuring.

II. GENERAL BACKGROUND OF THE DEBTORS

A. Corporate History and Formation

7. CPS was formed in 2007 as an Ohio limited liability company. Since its formation, CPS has operated as a manufacturer of specialty chemical packaging and industrial containment products, serving customers across the chemical, petrochemical, and agricultural sectors.

8. CPS Holdings Inc. is a Delaware corporation and the direct parent of CPS. CPS Holdings was organized as an intermediate holding entity in connection with the leveraged acquisition of CPS described below, and it serves solely as a holding company. CPS Holdings maintains its registered agent at National Corporate Services, Inc., 1209 Orange Street, Wilmington, Delaware 19801. CPS Holdings has no independent operations, no employees, and no revenue-generating activities; its sole material asset is its 100% equity interest in CPS.

9. In 2017, Thornfield Capital Partners LP ("Thornfield"), a Delaware limited partnership and private equity firm with approximately $4.8 billion in assets under management, headquartered at 590 Lexington Avenue, Suite 3200, New York, New York 10022, acquired 100% of the equity of CPS Holdings in a leveraged buyout (the "LBO") for an enterprise value of approximately $410 million. Thornfield contributed approximately $163 million in equity to fund the acquisition, and the remainder of the purchase price was funded through a combination of first lien and second lien debt, as described in further detail in Section III below. Julian Ashford is the Managing Partner of Thornfield. Rebecca Strand served as the Deal Partner responsible for the CPS acquisition and has served on CPS Holdings' board of directors since the closing of the LBO.

B. Business Operations and Products

10. CPS is headquartered at 4710 Industrial Corridor Drive, Akron, Ohio 44308. CPS's principal business is the design, manufacture, and sale of specialty chemical packaging and industrial containment products. The company's product lines include:

(a) HDPE (High-Density Polyethylene) Drums. CPS manufactures a comprehensive range of HDPE drums used for the storage and transport of liquid and semi-liquid chemicals. These drums are available in standard sizes ranging from 15 to 55 gallons and are manufactured to meet applicable United Nations (UN) packaging performance standards and United States Department of Transportation (DOT) specifications for the transport of hazardous materials.

(b) Intermediate Bulk Containers ("IBCs"). CPS produces composite and all-plastic IBCs used for the bulk transport and storage of industrial chemicals and agricultural products. IBCs typically range from 275 to 330 gallons in capacity and are designed for repeat use, with integrated pallet bases and discharge valves.

(c) Steel Pails. CPS manufactures open-head and tight-head steel pails in various sizes, used primarily for the packaging of adhesives, coatings, inks, and other specialty chemicals.

(d) Specialty Containment Vessels. CPS designs and manufactures custom-engineered containment vessels for specialty applications in the petrochemical and chemical processing industries, including overpack drums, salvage drums, and secondary containment systems.

11. CPS serves a diverse base of customers in the chemical, petrochemical, and agricultural sectors, including several Fortune 500 companies. The company's products are critical components of its customers' supply chains, as they are required for the safe storage, transport, and regulatory-compliant handling of hazardous and non-hazardous chemicals and industrial materials.

12. As of the Petition Date, CPS employed approximately 1,420 individuals across four manufacturing plants. The Debtors' workforce includes skilled machine operators, extrusion technicians, quality assurance and quality control personnel, maintenance technicians, logistics and warehouse staff, and corporate administrative and management personnel. CPS's workforce is a critical asset of the company, and the retention of these employees is essential to the preservation of the Debtors' going-concern value.

C. Manufacturing Facilities

13. The Debtors operate four manufacturing facilities and one leased warehouse, as set forth in the table below:

14. The Akron HQ facility (Plant 1) is the Debtors' largest manufacturing site and houses both the company's corporate offices and its primary HDPE drum production lines. The Evansville facility (Plant 2) focuses on IBC and steel pail manufacturing and serves customers throughout the Midwest and Southeast regions. The Baton Rouge facility (Plant 3) specializes in the manufacture of specialty containment vessels, primarily for the Gulf Coast petrochemical market. The Ravenna facility (Plant 4) houses the Debtors' extrusion lines and secondary processing operations, including blow molding, labeling, and finishing.

15. In addition to the four manufacturing plants, the Debtors maintain a leased warehouse at 900 Darrow Road, Akron, Ohio 44305, which is leased from Benchmark Real Estate Holdings LLC. The warehouse lease expires on December 31, 2025, and the monthly rent under the lease is $42,000. As of the Petition Date, the Debtors are current on rent payments under this warehouse lease, subject to the arrearage discussed in Section II.D below.

D. Key Contracts and Commercial Relationships

16. The Debtors are parties to a number of key contracts and commercial relationships that are essential to the continued operation of their business. The most significant of these are summarized below.

17. Resin Supply Agreement. CPS is a party to a five-year Resin Supply Agreement with Northstar Polymers Inc. ("Northstar"), a specialty polymer and resin supplier headquartered in Houston, Texas. The agreement, dated March 1, 2019, provides for the supply of HDPE resin and other polymer feedstock that is critical to CPS's HDPE drum and IBC production operations. HDPE resin is the single largest input cost in the Debtors' manufacturing process, and the Northstar relationship is a cornerstone of the Debtors' supply chain. As discussed further below, Northstar is among the Debtors' most significant critical vendors, and the Debtors seek authority to pay Northstar's prepetition claims as part of the Critical Vendor Motion.

18. Equipment Lease. CPS is a party to a seven-year master equipment lease with Meridian Industrial Leasing Corp. ("Meridian") for extrusion equipment located at Plant 4 (Ravenna). The monthly lease payment under the Meridian master lease is $87,500. The extrusion equipment subject to this lease is essential to the Debtors' manufacturing operations at the Ravenna facility, and the Debtors intend to continue making payments under this lease during the pendency of the Chapter 11 cases in order to maintain access to this critical equipment.

19. Warehouse Lease. As noted above, CPS leases warehouse space at 900 Darrow Road, Akron, Ohio 44305, from Benchmark Real Estate Holdings LLC ("Benchmark"). The monthly rent under the Benchmark lease is $42,000, and the lease expires on December 31, 2025. As of the Petition Date, the Debtors are approximately three months in arrears on rent payments under the Benchmark lease, resulting in a prepetition cure amount of approximately $126,000. The Debtors intend to assume this lease and cure the arrearage in connection with the plan of reorganization or by separate motion.

E. Officers and Key Personnel

20. The Debtors' senior management team is led by the following officers:

(a) Marcus J. Reinholdt — Chief Executive Officer. Mr. Reinholdt has served as CEO of CPS since 2017 and is responsible for the overall strategic direction and management of the company's operations.

(b) Dana Kowalski — Chief Financial Officer (the declarant). I have served as CFO of CPS since March 2019 and am responsible for all financial planning, reporting, treasury, tax, and accounting functions.

(c) Preston Yee — General Counsel. Mr. Yee has served as General Counsel of CPS since 2018 and is responsible for all legal affairs of the Debtors, including regulatory compliance, commercial contracts, and litigation.

21. The continued service and dedication of the Debtors' management team and workforce is essential to the successful execution of the restructuring and the preservation of the Debtors' going-concern value. The Debtors' management has been actively engaged in the prepetition restructuring negotiations described herein and will continue to oversee the Debtors' day-to-day operations throughout the Chapter 11 process.

III. FINANCIAL OVERVIEW

A. Historical Financial Performance

22. For the fiscal year ended December 31, 2021 ("FY2021"), CPS reported total revenue of approximately $312.6 million and earnings before interest, taxes, depreciation, and amortization ("EBITDA") of approximately $38.4 million. The company's revenue declined approximately 18% from fiscal year 2020 ("FY2020") to FY2021, driven principally by significant increases in the cost of HDPE resin and other raw materials, broader supply chain disruption that impaired production efficiency and on-time delivery performance, and the resulting compression of profit margins. While CPS attempted to pass through a portion of the increased input costs to its customer base through negotiated price adjustments, competitive market dynamics limited the company's ability to fully offset the increased costs, and margins remained under significant pressure throughout FY2021.

23. Financial performance continued to deteriorate during the first quarter of 2022 ("Q1 2022"). For the trailing twelve-month period ended March 31, 2022, the Debtors' EBITDA was approximately $29.1 million, reflecting continued margin compression as resin and raw material costs remained elevated and customer pricing adjustments lagged input cost increases. The decline in EBITDA had a material adverse effect on the Debtors' ability to service their existing debt obligations and comply with the financial covenants contained in the First Lien Credit Agreement, as described in Section IV below.

B. Capital Structure as of the Petition Date

24. As of the Petition Date, the Debtors' funded debt obligations totaled approximately $247.3 million, consisting of the following:

25. First Lien Credit Facility. The first lien revolving credit facility (the "Revolver") and the first lien term loan (the "Term Loan," and together with the Revolver, the "First Lien Credit Facility") were entered into on October 13, 2017, pursuant to a Credit Agreement (the "First Lien Credit Agreement") among CPS, as borrower, CPS Holdings, as guarantor, Ridgeline National Bank, N.A., as administrative agent and collateral agent ("Ridgeline"), and the lenders party thereto from time to time. Ridgeline maintains its principal offices at 200 Public Square, Cleveland, Ohio 44114. As of the Petition Date, $32.6 million was drawn on the $40.0 million Revolver commitment, and $158.7 million remained outstanding on the Term Loan (which had an original principal balance of $175.0 million, with the balance reduced through scheduled amortization payments). The aggregate first lien secured claims under the First Lien Credit Agreement are approximately $191.3 million.

26. Second Lien Notes. On October 13, 2017, in connection with the closing of the LBO, CPS issued $60.0 million in aggregate principal amount of 9.75% Senior Secured Second Lien Notes due 2025 (the "Second Lien Notes," CUSIP: 22761TAA3) pursuant to an Indenture (the "Second Lien Notes Indenture") among CPS, as issuer, CPS Holdings, as guarantor, and Continental Fiduciary Trust Company, as indenture trustee (the "Indenture Trustee"). The Indenture Trustee maintains its principal offices at 101 Barclay Street, New York, New York 10286. In 2019, CPS repurchased $4.0 million in aggregate principal amount of the Second Lien Notes in open-market transactions, reducing the outstanding principal amount to $56.0 million as of the Petition Date. In addition, as a result of the Notice of Default described in Section IV.B below, default-rate interest at an additional 2.00% per annum has been accruing on the Second Lien Notes since April 22, 2022. As of the Petition Date, accrued interest on the Second Lien Notes (including default-rate interest) is approximately $3.9 million, bringing the total estimated Second Lien claims to approximately $59.9 million.

27. Both the First Lien Credit Agreement and the Second Lien Notes Indenture were entered into on October 13, 2017, in connection with the closing of Thornfield's leveraged acquisition of CPS Holdings. The obligations under both instruments are secured by substantially all of the assets of CPS and guaranteed by CPS Holdings, with the liens securing the First Lien Credit Facility having priority over the liens securing the Second Lien Notes pursuant to an Intercreditor Agreement dated October 13, 2017.

C. Employer Identification Numbers

28. The federal employer identification numbers for each of the Debtors are as follows:

• Crestline Packaging Solutions LLC: 31-1782094

• CPS Holdings Inc.: 82-3491657

IV. EVENTS LEADING TO THE CHAPTER 11 FILING

A. Covenant Breach

29. Section 7.11 of the First Lien Credit Agreement contains a financial maintenance covenant requiring CPS to maintain a maximum leverage ratio — defined as the ratio of Total Net Debt to EBITDA — not to exceed 5.75x (the "Leverage Covenant"). The Leverage Covenant is tested on a quarterly basis as of the end of each fiscal quarter based on the trailing twelve-month EBITDA figure.

30. As of the end of Q1 2022 (March 31, 2022), the Debtors' actual leverage ratio was calculated as follows:

Total Net Debt: $247.3 million ÷ TTM EBITDA: $29.1 million = 8.50x

31. The Debtors' leverage ratio of 8.50x exceeded the maximum permitted level of 5.75x by 2.75x, representing a breach of 47.8% above the covenant ceiling. This significant breach constituted an event of default under Section 7.11 of the First Lien Credit Agreement.

32. The primary causes of the Debtors' financial deterioration and the resulting covenant breach were threefold: (i) significant increases in the cost of HDPE resin and other raw materials, which are the Debtors' largest variable input costs and are subject to commodity price fluctuations beyond the Debtors' control; (ii) supply chain disruptions, including transportation bottlenecks, labor shortages at upstream suppliers, and delays in the delivery of critical components, all of which impaired the Debtors' production efficiency and ability to fulfill customer orders on a timely basis; and (iii) the inability to fully pass through increased input costs to customers in a competitive market environment, which resulted in sustained margin compression throughout FY2021 and the first quarter of FY2022.

B. Notice of Default

33. On April 22, 2022, Ridgeline National Bank, N.A., acting in its capacity as administrative agent under the First Lien Credit Agreement, delivered a formal Notice of Default (the "Notice of Default") to CPS, citing the breach of Section 7.11 of the First Lien Credit Agreement (the Leverage Covenant). The Notice of Default stated that the leverage ratio breach constituted an "Event of Default" under Section 8.01(c) of the First Lien Credit Agreement and that, as a consequence, the administrative agent reserved all rights and remedies available under the First Lien Credit Agreement, applicable law, or otherwise.

34. The Notice of Default also triggered a cross-default under Section 6.01(e) of the Second Lien Notes Indenture, which provides that the occurrence of a payment or covenant default under the First Lien Credit Agreement constitutes an event of default under the Second Lien Notes Indenture if such default results in acceleration or permits the holders of the relevant debt to accelerate the maturity thereof.

35. As a result of the defaults under the First Lien Credit Agreement and the Second Lien Notes Indenture, the lenders under the First Lien Credit Agreement and the holders of the Second Lien Notes obtained acceleration rights, and default-rate interest began accruing under both instruments. The default-rate interest under the Second Lien Notes Indenture is 2.00% per annum in excess of the stated coupon rate of 9.75%, resulting in an effective interest rate of 11.75% during the pendency of the default. The additional default-rate interest accruing on the Second Lien Notes from April 22, 2022 through the Petition Date contributed to the approximately $3.9 million in total accrued interest on the Second Lien Notes referenced in Section III.B above.

C. Forbearance Agreement

36. Following receipt of the Notice of Default, the Debtors immediately engaged with Ridgeline and the company's key creditor constituencies to negotiate a consensual path forward. These negotiations were conducted with the assistance of the Debtors' restructuring counsel, Calderwood & Harkness LLP, and financial advisor, Aldersgate Advisory Group LLC.

37. During the course of these negotiations, the Ad Hoc Group of First Lien Lenders (as defined below) organized and retained counsel. The Ad Hoc Group held approximately 68% in aggregate principal amount of the outstanding first lien term loan and represented a critical constituency in the restructuring process.

38. On May 18, 2022, the Debtors, Ridgeline (as administrative agent), and the consenting first lien lenders executed a Forbearance Agreement (the "Forbearance Agreement"), pursuant to which the consenting first lien lenders agreed to forbear from exercising their rights and remedies arising from the existing defaults for an initial period of 45 days (through July 2, 2022). The Forbearance Agreement was subject to customary conditions, including the Debtors' compliance with certain reporting requirements, cash management restrictions, and limitations on capital expenditures during the forbearance period.

39. On July 1, 2022, the Forbearance Agreement was extended for an additional period of approximately two weeks, through July 15, 2022, to allow the Debtors and their creditor constituencies to finalize the terms of the Restructuring Support Agreement described below. Throughout the forbearance period, the Debtors engaged in active and intensive negotiations with all major creditor constituencies, including the Ad Hoc Group of First Lien Lenders, the Ad Hoc Group of Second Lien Noteholders, and the Debtors' private equity sponsor, Thornfield.

D. Prepetition Restructuring Negotiations

40. In anticipation of the restructuring, the Debtors retained Calderwood & Harkness LLP ("Calderwood & Harkness") as their restructuring counsel and Aldersgate Advisory Group LLC ("Aldersgate") as their financial advisor and investment banker. Aldersgate's engagement has been led by Priya Narayanan, Managing Director. These professionals have extensive experience in complex corporate restructurings and have been instrumental in guiding the Debtors through the negotiation process.

41. During the prepetition period, two principal creditor constituencies organized and retained separate legal counsel:

(a) Ad Hoc Group of First Lien Lenders. An ad hoc group of holders of the first lien term loan (the "Ad Hoc Group of First Lien Lenders") was organized, holding approximately 68% in aggregate principal amount of the outstanding Term Loan. Key members of the Ad Hoc Group of First Lien Lenders include:

• Blackmoor Capital Management LLC (contact: Arthur Ng), holding approximately $41.2 million in Term Loan claims;

• Greystone Fixed Income Partners LP (contact: Sandra Ibanez), holding approximately $28.6 million in Term Loan claims; and

• Wexford Opportunity Fund III LP (contact: Derek Loomis), holding approximately $37.9 million in Term Loan claims.

The Ad Hoc Group of First Lien Lenders retained Hargrove, Mitchell & Saunders LLP as its legal counsel, with Victoria Kline serving as lead partner. Hargrove, Mitchell & Saunders LLP maintains offices at 51 West 52nd Street, New York, New York 10019.

(b) Ad Hoc Group of Second Lien Noteholders. An ad hoc group of holders of the Second Lien Notes (the "Ad Hoc Group of Second Lien Noteholders") was organized, holding approximately 72% in aggregate principal amount of the outstanding Second Lien Notes. Key members of the Ad Hoc Group of Second Lien Noteholders include:

• Fenwick Structured Credit Fund II LP (contact: Liam Driscoll), holding approximately $18.3 million in Second Lien Notes; and

• Millhaven Capital Advisors LLC (contact: Karen Ostrowski), holding approximately $22.1 million in Second Lien Notes.

The Ad Hoc Group of Second Lien Noteholders retained Pemberton & Locke LLP as its legal counsel, with Raymond Delvecchio serving as lead partner. Pemberton & Locke LLP maintains offices at 1 Liberty Plaza, New York, New York 10006.

42. Following extensive arm's-length negotiations among the Debtors, Thornfield, the Ad Hoc Group of First Lien Lenders, and the Ad Hoc Group of Second Lien Noteholders — which negotiations involved multiple in-person sessions, dozens of conference calls, and the exchange of numerous term sheets, financial models, and draft documents — the parties reached agreement on the material terms of a prepackaged plan of reorganization (the "Plan").

E. Restructuring Support Agreement

43. On July 8, 2022, the Debtors, CPS Holdings, Thornfield, the Ad Hoc Group of First Lien Lenders, and the Ad Hoc Group of Second Lien Noteholders executed a Restructuring Support Agreement (the "RSA"), which memorializes the parties' agreement on the key terms of the restructuring and the prepackaged Plan.

44. I note for the Court's benefit that, while the RSA was formally executed on July 8, 2022 — after the Petition Date of June 20, 2022 — the key economic terms of the restructuring were substantially agreed upon among the parties during the prepetition period, and the Debtors' decision to file for Chapter 11 relief on June 20, 2022, was premised on the restructuring framework that is reflected in the RSA. The timing of the filing was driven by operational and liquidity considerations, including the need to obtain debtor-in-possession financing on an expedited basis, while the finalization of the RSA documentation required additional time to negotiate and draft the detailed terms, conditions, and milestones reflected therein.

45. The RSA includes the following key milestones:

(a) Petition Date: No later than July 31, 2022 (actual filing: June 20, 2022);

(b) Disclosure Statement Approval: Within 45 days of the Petition Date;

(d) Effective Date: Within 15 business days of entry of the Confirmation Order.

46. The RSA contains customary provisions, including party commitments to support the Plan, vote in favor of the Plan (to the extent holding claims entitled to vote), and refrain from taking any action inconsistent with the RSA or the Plan. The RSA also includes termination events tied to the failure to achieve the milestones set forth above, the occurrence of material adverse changes, and other customary conditions.

F. Summary of Plan Economics

47. The Plan, as contemplated by the RSA, provides for the following treatment of claims and interests:

(a) Class 2 — First Lien Secured Claims (approximately $191.3 million, consisting of $158.7 million in Term Loan claims and $32.6 million in Revolver claims): Holders of allowed first lien secured claims shall receive their pro rata share of (i) 92% of the reorganized equity of Reorganized CPS and (ii) $12.5 million in aggregate principal amount of new first lien take-back term loans issued by Reorganized CPS on the Effective Date.

(b) Class 3 — Second Lien Secured Claims (approximately $59.9 million, including accrued interest and default-rate interest): Holders of allowed second lien secured claims shall receive their pro rata share of (i) 8% of the reorganized equity of Reorganized CPS and (ii) warrants to purchase up to an additional 5% of the reorganized equity at a strike price equal to the plan equity value.

(c) Class 4 — General Unsecured Claims (approximately $14.8 million): Holders of allowed general unsecured claims shall receive their pro rata share of a $1.5 million cash distribution pool, resulting in an estimated recovery of approximately 10.1 cents on the dollar.

(d) Class 6 — Existing Equity Interests (held by Thornfield): All existing equity interests in CPS Holdings shall be cancelled and extinguished on the Effective Date, and Thornfield shall receive no distribution on account of its equity interests.

(e) Management Incentive Plan: 10% of the reorganized equity shall be reserved for a post-emergence Management Incentive Plan ("MIP"), diluting all classes of equity recipients on a pro rata basis. The specific terms of the MIP, including vesting schedules, performance targets, and individual allocations, shall be determined by the board of directors of Reorganized CPS following the Effective Date.

G. Decision to File

48. After careful consideration, and in consultation with their restructuring counsel, financial advisor, and other professionals, the Debtors determined that a prepackaged Chapter 11 filing was the best available path to implement the restructuring contemplated by the RSA on an expeditious basis, preserve the Debtors' going-concern value, and maximize recoveries for all creditor constituencies. The prepackaged approach was specifically selected to minimize the duration and cost of the Chapter 11 cases and to avoid the significant operational disruption that would be associated with a prolonged bankruptcy proceeding. Given the nature of the Debtors' business — which requires uninterrupted access to raw material suppliers, equipment, and a skilled workforce — a swift restructuring is essential to preserving value.

49. In preparation for the filing, the Debtors engaged Kellner & Hartwick LLP ("Kellner & Hartwick") as local co-counsel in the Northern District of Ohio. Bruce Tatelman is the lead partner at Kellner & Hartwick responsible for the Debtors' engagement. Kellner & Hartwick maintains offices at 600 Superior Avenue East, Suite 1800, Cleveland, Ohio 44114.

50. Additionally, in anticipation of the filing, the Debtors obtained a directors' and officers' liability insurance tail policy (the "D&O Tail Policy") from Apex Indemnity Insurance Company, providing an aggregate coverage limit of $15.0 million. The tail premium for this policy was $1.2 million, which was paid prepetition. The D&O Tail Policy is designed to protect the Debtors' current and former directors and officers against potential claims arising from prepetition conduct and is a standard and customary measure in connection with a corporate restructuring of this nature.

V. PROFESSIONALS RETAINED BY THE DEBTORS

51. In connection with the restructuring and the filing of these Chapter 11 cases, the Debtors have retained the following professional firms, each of which will seek formal Court approval of its retention in accordance with the applicable provisions of the Bankruptcy Code and Bankruptcy Rules:

(a) Calderwood & Harkness LLP — Restructuring Counsel. Calderwood & Harkness LLP serves as the Debtors' primary restructuring counsel. The firm maintains offices at 30 Rockefeller Plaza, New York, New York 10112 and 127 Public Square, Suite 4100, Cleveland, Ohio 44114. The engagement team consists of Colette Whitman (responsible partner), Nathaniel Bower (billing partner), Gabrielle Moss (lead associate), and Amy Chesterton (working associate). Calderwood & Harkness received a retainer of $500,000 from the Debtors on June 10, 2022.

(b) Kellner & Hartwick LLP — Local Co-Counsel. Kellner & Hartwick LLP serves as the Debtors' local co-counsel in the Northern District of Ohio. The firm is located at 600 Superior Avenue East, Suite 1800, Cleveland, Ohio 44114. Bruce Tatelman is the lead partner on the engagement. Estimated fees for Kellner & Hartwick's representation are approximately $380,000.

(c) Aldersgate Advisory Group LLC — Financial Advisor and Investment Banker. Aldersgate Advisory Group LLC serves as the Debtors' financial advisor and investment banker. The firm is located at 280 Park Avenue, 12th Floor, New York, New York 10017. The engagement is led by Priya Narayanan, Managing Director. Aldersgate's compensation includes a monthly advisory fee of $175,000 and a restructuring completion fee of $3.5 million, payable upon the effective date of a confirmed plan of reorganization.

(d) Dralvecen Reyes Linley CPAs LLP & Associates LLP — Tax and Accounting Advisor. Dralvecen Reyes Linley CPAs LLP & Associates LLP serves as the Debtors' tax and accounting advisor. The firm is located at 191 North Wacker Drive, Suite 2300, Chicago, Illinois 60606. Catherine Holtz is the lead partner on the engagement.

(e) Pinnacle Claims Administration LLC — Claims and Noticing Agent. Pinnacle Claims Administration LLC has been engaged to serve as claims and noticing agent in the Chapter 11 cases. Pinnacle is located at 1010 Dale Street North, St. Paul, Minnesota 55117. Estimated fees for Pinnacle's services are approximately $285,000.

52. Applications for the retention of each of the foregoing professionals are being or will be filed with the Court in accordance with Sections 327, 328, and 330 of the Bankruptcy Code and the applicable Bankruptcy Rules and Local Rules.

VI. FACTS IN SUPPORT OF THE FIRST DAY MOTIONS

53. Set forth below is a summary of the factual basis supporting each of the First Day Motions. Additional facts, legal authorities, and detailed argument in support of each motion are set forth in the respective pleadings and memoranda of law filed in support thereof. The descriptions provided herein are intended to supplement, and not to replace, the factual and legal arguments contained in the First Day Motions themselves.

A. Motion for Joint Administration

54. The Debtors have filed a motion, pursuant to Bankruptcy Rule 1015(b) and Local Rule 1015-1, for joint administration of the Chapter 11 cases of CPS (Case No. 22-51247) and CPS Holdings (Case No. 22-51248).

55. CPS and CPS Holdings are affiliated debtors with common ownership and management. As described above, CPS Holdings is the direct parent of CPS and holds 100% of CPS's equity interests. CPS Holdings has no independent operations, no employees, no revenue, and no assets other than its equity interest in CPS. The two entities share common officers and directors, and their financial and legal affairs are closely intertwined.

56. Joint administration of the two cases under a single docket (Case No. 22-51247) will promote administrative efficiency, avoid duplicative filings, motions, notices, and hearings, and reduce administrative costs for the estates and their creditors. Specifically, joint administration will allow the Debtors to file a single set of schedules and statements, serve consolidated notices, and present a single prepackaged plan of reorganization and disclosure statement, rather than separate filings for each estate. These efficiencies will benefit all parties in interest.

57. Importantly, the Debtors are not seeking substantive consolidation of the two estates. Claims against and assets of each Debtor will remain separate and distinct, and creditors' rights against each individual Debtor will not be affected by the joint administration of the cases. The relief sought is purely procedural in nature and will not prejudice any party in interest.

B. Motion to Approve Pinnacle Claims Administration LLC as Claims and Noticing Agent

58. The Debtors have filed a motion, pursuant to 28 U.S.C. § 156(c) and the applicable Local Rules, to retain Pinnacle Claims Administration LLC ("Pinnacle") as claims and noticing agent in the Chapter 11 cases.

59. The Debtors have hundreds of creditors and other parties in interest who are entitled to receive notice in these Chapter 11 cases. The volume of potential creditors, interest holders, and other parties entitled to notice is sufficiently large that the Clerk of the Bankruptcy Court would otherwise bear a significant administrative burden in processing and serving the required notices.

60. Pinnacle has extensive experience serving as claims and noticing agent in Chapter 11 cases of comparable size and complexity. Pinnacle will be responsible for, among other things: (a) maintaining the official claims register in these cases; (b) receiving, docketing, and maintaining proofs of claim and all related documentation; (c) serving all required notices, including notice of the filing of the Chapter 11 petitions, the disclosure statement and plan, bar date notices, and all other notices required to be served under the Bankruptcy Code and Bankruptcy Rules; and (d) tabulating votes on the Debtors' prepackaged plan of reorganization.

61. Pinnacle's retention is warranted under 28 U.S.C. § 156(c) and will relieve the Clerk of the Bankruptcy Court of the administrative burden of processing the large volume of claims and notices in these cases. Pinnacle's estimated fees are approximately $285,000. Pinnacle maintains its principal offices at 1010 Dale Street North, St. Paul, Minnesota 55117.

C. Motion to Authorize Payment of Prepetition Critical Vendor Claims

62. The Debtors have filed a motion seeking entry of an order authorizing, but not directing, the Debtors to pay prepetition claims owed to certain critical vendors in an aggregate amount not to exceed $6.8 million.

63. The Debtors' critical vendors include suppliers of HDPE resin, steel, specialty chemicals, and other raw materials and components that are essential to the Debtors' manufacturing operations, as well as essential logistics and transportation providers without whom the Debtors would be unable to receive raw materials at their manufacturing facilities or deliver finished products to their customers.

64. Among the most significant of the Debtors' critical vendors is Northstar Polymers Inc., with whom CPS maintains a five-year Resin Supply Agreement dated March 1, 2019. As described above, Northstar is the Debtors' primary supplier of HDPE resin and other polymer feedstock, which are the principal raw materials used in the manufacture of HDPE drums and IBCs — the Debtors' two largest product lines by revenue. Any disruption of the supply relationship with Northstar would cause immediate and severe harm to the Debtors' operations, as HDPE resin is not a commodity that can be readily sourced from alternative suppliers on short notice, particularly given current market conditions and the specific grades and specifications required by CPS's manufacturing processes.

65. In addition to Northstar, the Debtors' critical vendor list includes other key raw material and component suppliers, specialized packaging and labeling vendors, and logistics and transportation providers. The Debtors' management, in consultation with their financial advisor, Aldersgate Advisory Group LLC, has carefully identified the specific vendors whose prepetition claims should be paid to preserve the Debtors' manufacturing operations and customer relationships. This analysis was conducted on a vendor-by-vendor basis, taking into account the availability of alternative supply sources, the lead times required to qualify and onboard replacement vendors, the contractual terms governing the Debtors' relationships with each vendor, and the potential operational and financial consequences of a supply disruption.

66. Without timely payment to these critical vendors, the Debtors' four manufacturing plants would face production shutdowns, customer losses, and destruction of going-concern value that would far exceed the aggregate amount of the critical vendor payments. The Debtors believe that the proposed critical vendor payments are in the best interests of the estates and their creditors and are authorized under the "doctrine of necessity" or "necessity of payment" doctrine, which permits a bankruptcy court to authorize the payment of prepetition claims where such payment is essential to the debtor's continued operations and the preservation of estate value.

67. The proposed critical vendor payments are supported by the Debtors' 13-week cash flow budget and the DIP financing facility described below, and the Debtors have sufficient liquidity to fund the critical vendor payments without prejudice to other administrative obligations.

D. Motion to Authorize Payment of Prepetition Employee Wages and Benefits

68. The Debtors have filed a motion seeking entry of an order authorizing, but not directing, the Debtors to honor and pay prepetition obligations to their employees for wages, salaries, benefits, and related obligations.

69. As of the Petition Date, the Debtors employ approximately 1,420 individuals across their four manufacturing facilities and corporate offices. The Debtors' workforce is the backbone of the company's operations and includes highly skilled and specialized personnel who would be extremely difficult or impossible to replace in the current labor market. Specifically, the Debtors' manufacturing workforce includes machine operators, extrusion technicians, quality assurance and quality control personnel, maintenance technicians, and logistics staff, many of whom have received specialized training on the Debtors' proprietary equipment and manufacturing processes. The loss of even a modest number of these skilled workers would materially impair the Debtors' ability to maintain production levels at their four plants and would jeopardize the Debtors' ability to fulfill existing customer orders and preserve key customer relationships.

70. The Debtors seek authority to honor the following prepetition obligations owed to their employees:

(a) Accrued but unpaid wages and salaries;

(b) Accrued but unpaid commissions;

(c) Health and welfare benefits, including medical, dental, vision, life insurance, and short-term and long-term disability insurance premiums and claims;

(d) Workers' compensation obligations and premiums;

(e) Related payroll taxes and withholdings, including federal and state income tax withholdings, FICA contributions, and unemployment insurance taxes;

(f) Matching and employer contributions to 401(k) retirement plans and other retirement and savings plan contributions; and

(g) Paid time off ("PTO") and vacation obligations accrued prepetition.

71. Failure to honor these obligations would cause immediate and irreparable harm to the Debtors' operations and the estates. Many of the Debtors' employees live paycheck to paycheck and depend on the timely receipt of their wages and benefits to meet their daily living expenses. If the Debtors fail to pay accrued wages and benefits, employees will have no choice but to seek employment elsewhere, resulting in mass departures, a catastrophic loss of institutional knowledge, and the inability to maintain production at all four manufacturing plants. The operational and financial consequences of such an outcome would be devastating and would far exceed the cost of honoring the Debtors' prepetition employee obligations.

72. Employee claims for prepetition wages and salaries are entitled to priority under Section 507(a)(4) of the Bankruptcy Code, which provides priority for allowed unsecured claims for wages, salaries, and commissions earned within 180 days before the date of the filing of the petition or the date of the cessation of the debtor's business, whichever occurs first, to the extent of $15,150 per individual. Employee benefit plan contributions are entitled to priority under Section 507(a)(5) of the Bankruptcy Code.

73. Based on my review of the Debtors' payroll records and employee benefit plan records, I believe that all of the Debtors' prepetition employee obligations that the Debtors seek to honor pursuant to this motion fall within the priority caps established by Sections 507(a)(4) and 507(a)(5). Accordingly, the proposed payments will not result in the payment of any obligation that would not otherwise be entitled to priority treatment and, ultimately, payment in full under a plan of reorganization. Payment of these obligations now, rather than deferring such payment until plan confirmation, is essential to retaining the Debtors' workforce and maintaining production operations during the pendency of the Chapter 11 cases.

E. Motion for Interim and Final Approval of DIP Financing

74. The Debtors have filed a motion seeking entry of interim and final orders approving a $30.0 million senior secured superpriority revolving debtor-in-possession credit facility (the "DIP Facility") to fund the Debtors' operations during the pendency of the Chapter 11 cases.

75. The key terms of the DIP Facility are as follows:

(a) DIP Lender. Ridgeline National Bank, N.A., as administrative agent, and the consenting first lien lenders under the First Lien Credit Agreement who have agreed to provide the DIP Facility.

(b) DIP Facility Amount. $30.0 million revolving credit facility.

(c) Interest Rate. SOFR plus 500 basis points; upon the occurrence and during the continuance of an event of default, the interest rate shall increase by an additional 200 basis points (the "Default Rate").

(d) Maturity. The earlier to occur of (i) 120 days after the Petition Date or (ii) the effective date of a confirmed plan of reorganization.

(e) Fees. A commitment fee of 1.50% of the total DIP Facility commitment ($450,000) and a closing fee of 2.00% of the total DIP Facility commitment ($600,000), both payable in full on the closing date.

(f) Budget. The Debtors shall operate in accordance with a 13-week rolling cash flow budget (the "DIP Budget"), which shall be updated and delivered to the DIP Lender on a bi-weekly basis. Permitted variances on disbursements: ±15%, tested bi-weekly.

(g) Security. The DIP Facility shall be secured by (i) a superpriority administrative expense claim under Section 364(c)(1) of the Bankruptcy Code with priority over all other administrative expense claims (other than the Carve-Out), and (ii) priming liens on substantially all of the Debtors' assets under Section 364(d) of the Bankruptcy Code, subject to existing permitted prior liens.

(h) Adequate Protection. In consideration of the priming liens granted to the DIP Lender, the prepetition first lien lenders shall receive adequate protection in the form of: (i) replacement liens on all DIP collateral, junior only to the DIP liens and permitted senior liens; (ii) superpriority administrative expense claims under Section 507(b) of the Bankruptcy Code; (iii) current cash payment of interest and fees accruing under the First Lien Credit Agreement during the pendency of the Chapter 11 cases; and (iv) the establishment and maintenance of professional fee reserves as provided in the DIP credit agreement and the applicable orders of the Court.

76. The DIP Credit Agreement is dated June 24, 2022, and was executed following the first day hearing. The DIP Facility was negotiated at arm's length between the Debtors and the DIP Lender with the active assistance of the Debtors' financial advisor, Aldersgate Advisory Group LLC. The Debtors, through Aldersgate, explored alternative sources of debtor-in-possession financing, including outreach to several institutional lenders, and determined that the proposed DIP Facility represents the best available financing on the most favorable terms reasonably obtainable, given the Debtors' circumstances, the existing lender group's detailed familiarity with the Debtors' operations and financial condition, and the willingness of the existing lender group to provide financing on an expedited basis.

77. Without the DIP Facility, the Debtors will lack sufficient liquidity to fund their day-to-day operations during the pendency of the Chapter 11 cases, pay employees, satisfy critical vendor obligations, and implement the prepackaged plan of reorganization on the timeline contemplated by the RSA. The DIP Facility is essential to the Debtors' ability to continue operating as a going concern, maintain production at their four manufacturing plants, retain their workforce, preserve customer relationships, and ultimately emerge from Chapter 11 as a viable reorganized enterprise.

78. The Debtors seek interim approval of the DIP Facility at the first day hearing, with a proposed interim order to be entered on June 24, 2022. The Debtors further seek final approval of the DIP Facility following notice and a final hearing, with a proposed final order to be entered thereafter. The final hearing on the DIP Facility was held on July 18, 2022, and the final order approving the DIP Facility was entered on that date.

VII. CONCLUSION

79. For the reasons set forth in this Declaration and in the First Day Motions filed contemporaneously herewith, the Debtors respectfully request that the Court grant the relief requested in each of the First Day Motions. Granting such relief is necessary and appropriate to preserve the Debtors' going-concern value, protect the Debtors' 1,420 employees, maintain critical commercial relationships with key suppliers and customers, and facilitate the Debtors' orderly and expeditious reorganization through the prepackaged plan of reorganization.

80. The relief requested in the First Day Motions is consistent with the objectives of Chapter 11 and in the best interests of the Debtors, their estates, and all creditor constituencies. Absent such relief, the Debtors face the risk of operational disruption, employee departures, supply chain failures, customer losses, and the potential destruction of hundreds of millions of dollars in going-concern value — consequences that would harm all stakeholders.

81. I am available and prepared to testify at the first day hearing scheduled for June 21, 2022, at such time as the Court may direct.

VERIFICATION

I, Dana Kowalski, declare under penalty of perjury under the laws of the United States of America that the foregoing is true and correct to the best of my knowledge, information, and belief.

Executed on: June 20, 2022 Akron, Ohio

________________________________________

Dana Kowalski Chief Financial Officer Crestline Packaging Solutions LLC 4710 Industrial Corridor Drive Akron, OH 44308

CERTIFICATE OF SERVICE

I hereby certify that on June 20, 2022, a true and correct copy of the foregoing Declaration of Dana Kowalski, Chief Financial Officer of Crestline Packaging Solutions LLC, in Support of Debtors' First Day Motions was served by electronic mail and/or first-class mail, postage prepaid, upon the following parties:

1. Office of the United States Trustee, Region 9

Howard M. Metzenbaum U.S. Courthouse 201 Superior Avenue Cleveland, OH 44114

2. Hargrove, Mitchell & Saunders LLP (counsel to the Ad Hoc Group of First Lien Lenders)

Attn: Victoria Kline, Esq.

51 West 52nd Street New York, NY 10019

3. Pemberton & Locke LLP (counsel to the Ad Hoc Group of Second Lien Noteholders)

Attn: Raymond Delvecchio, Esq.

1 Liberty Plaza New York, NY 10006

4. Ridgeline National Bank, N.A. (Administrative Agent and Collateral Agent under the First Lien Credit Agreement, and Administrative Agent under the DIP Credit Agreement)

200 Public Square Cleveland, OH 44114

5. Continental Fiduciary Trust Company (Indenture Trustee under the Second Lien Notes Indenture)

101 Barclay Street New York, NY 10286

6. All other parties entitled to notice under the Bankruptcy Rules, the Local Rules of the United States Bankruptcy Court for the Northern District of Ohio, and applicable orders of the Court.

________________________________________

Bruce Tatelman, Esq. KELLNER & HARTWICK LLP 600 Superior Avenue East, Suite 1800 Cleveland, OH 44114 Telephone: (216) 555-4200 Facsimile: (216) 555-4201

Email: btatelman@kellnerhartwick.com

Local Co-Counsel for the Debtors and Debtors in Possession

In re:	Case No. 22-51247
CRESTLINE PACKAGING SOLUTIONS LLC, et al.,¹	Chapter 11
<!-- indent:2 -->Debtors.<!-- /indent -->	(Jointly Administered)
Facility	Address	Operations	Approx. Employees
Plant 1 (Akron HQ)	4710 Industrial Corridor Drive, Akron, OH 44308	Corporate headquarters; HDPE drum manufacturing	480
Plant 2 (Evansville)	2255 Commerce Parkway, Evansville, IN 47725	IBC and steel pail manufacturing	390
Plant 3 (Baton Rouge)	8100 River Road, Baton Rouge, LA 70820	Specialty containment vessels	310
Plant 4 (Ravenna)	1480 State Route 59, Ravenna, OH 44266	Extrusion and secondary processing	240
Warehouse (Akron)	900 Darrow Road, Akron, OH 44305	Warehousing and distribution	—
Instrument	Amount Outstanding	Original Amount	Interest Rate	Maturity
First Lien Revolving Credit Facility	$32.6 million	$40.0 million (commitment)	SOFR + 375 bps	October 13, 2022
First Lien Term Loan	$158.7 million	$175.0 million (original)	SOFR + 425 bps	October 13, 2024
9.75% Senior Secured Second Lien Notes	$56.0 million	$60.0 million (issued Oct. 13, 2017; $4.0M repurchased in open market in 2019)	9.75% (fixed)	October 13, 2025
Total Funded Debt	$247.3 million

UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF OHIO EASTERN DIVISION
¹ The Debtors in these Chapter 11 cases, together with the last four digits of each Debtor's federal tax identification number, are: Crestline Packaging Solutions LLC (2094) and CPS Holdings Inc. (1657). The location of the Debtors' corporate headquarters and the service address for the Debtors in these Chapter 11 cases is 4710 Industrial Corridor Drive, Akron, OH 44308.
DECLARATION OF DANA KOWALSKI, CHIEF FINANCIAL OFFICER OF CRESTLINE PACKAGING SOLUTIONS LLC, IN SUPPORT OF DEBTORS' FIRST DAY MOTIONS
Filed: June 20, 2022
I. INTRODUCTION AND PRELIMINARY STATEMENT
1. I, Dana Kowalski, am the Chief Financial Officer of Crestline Packaging Solutions LLC ("CPS" or "Crestline"). I am over eighteen (18) years of age, competent to testify, and make this declaration under penalty of perjury pursuant to 28 U.S.C. § 1746. I submit this declaration (this "Declaration") in support of the voluntary petitions for relief filed by CPS and CPS Holdings Inc. (together, the "Debtors") under Chapter 11 of Title 11 of the United States Code (the "Bankruptcy Code") on June 20, 2022 (the "Petition Date"), and in support of the Debtors' first day motions and applications (collectively, the "First Day Motions") filed contemporaneously herewith.
2. I have served as CFO of CPS since March 2019. Prior to my appointment as CFO, I served in various finance and accounting roles within CPS beginning in 2015, including Senior Vice President of Finance and Controller. In these capacities, I have developed an extensive and detailed understanding of the Debtors' business operations, financial condition, capital structure, and the circumstances giving rise to the commencement of these Chapter 11 cases.
3. I am authorized to submit this Declaration on behalf of both Debtors. CPS Holdings Inc. ("CPS Holdings"), a Delaware corporation, is the direct parent entity of CPS and the sole holder of CPS's equity interests. CPS Holdings has no independent operations, no employees, and no assets other than its equity interest in CPS. Both entities are filing for relief under Chapter 11 of the Bankruptcy Code to effectuate the comprehensive financial restructuring described herein.
4. The purpose of this Declaration is to provide the Court with factual support for each of the First Day Motions filed by the Debtors on the Petition Date. Unless otherwise indicated, all facts stated in this Declaration are based on my personal knowledge, my review of relevant documents, the Debtors' books and records, or information provided to me by other officers, employees, and retained professionals of the Debtors. If called as a witness, I could and would testify competently to the matters set forth herein.
5. This Declaration supports the following First Day Motions:
(a) Motion for Joint Administration of the Chapter 11 cases of CPS (Case No. 22-51247) and CPS Holdings (Case No. 22-51248) pursuant to Bankruptcy Rule 1015(b);
(b) Motion to Approve Claims and Noticing Agent — specifically, the Debtors' application to retain Pinnacle Claims Administration LLC as claims and noticing agent pursuant to 28 U.S.C. § 156(c);
(c) Motion to Pay Critical Vendors — the Debtors' motion for authority to pay prepetition claims of critical vendors in an aggregate amount not to exceed $6.8 million;
(d) Motion to Pay Employee Wages and Benefits — the Debtors' motion for authority to honor prepetition obligations to employees for wages, salaries, commissions, health and welfare benefits, retirement plan contributions, and related obligations; and
(e) Motion for Interim and Final Approval of DIP Financing — the Debtors' motion seeking interim and final approval of a $30.0 million senior secured superpriority revolving debtor-in-possession credit facility.
6. In support of these motions, I describe below the Debtors' business operations, corporate structure, financial condition, capital structure, and the events that precipitated the filing of these Chapter 11 cases. I also set forth the factual basis supporting each of the First Day Motions and explain why the relief sought therein is necessary and appropriate to preserve the Debtors' going-concern value and facilitate an orderly and expeditious restructuring.
II. GENERAL BACKGROUND OF THE DEBTORS
A. Corporate History and Formation
7. CPS was formed in 2007 as an Ohio limited liability company. Since its formation, CPS has operated as a manufacturer of specialty chemical packaging and industrial containment products, serving customers across the chemical, petrochemical, and agricultural sectors.
8. CPS Holdings Inc. is a Delaware corporation and the direct parent of CPS. CPS Holdings was organized as an intermediate holding entity in connection with the leveraged acquisition of CPS described below, and it serves solely as a holding company. CPS Holdings maintains its registered agent at National Corporate Services, Inc., 1209 Orange Street, Wilmington, Delaware 19801. CPS Holdings has no independent operations, no employees, and no revenue-generating activities; its sole material asset is its 100% equity interest in CPS.
9. In 2017, Thornfield Capital Partners LP ("Thornfield"), a Delaware limited partnership and private equity firm with approximately $4.8 billion in assets under management, headquartered at 590 Lexington Avenue, Suite 3200, New York, New York 10022, acquired 100% of the equity of CPS Holdings in a leveraged buyout (the "LBO") for an enterprise value of approximately $410 million. Thornfield contributed approximately $163 million in equity to fund the acquisition, and the remainder of the purchase price was funded through a combination of first lien and second lien debt, as described in further detail in Section III below. Julian Ashford is the Managing Partner of Thornfield. Rebecca Strand served as the Deal Partner responsible for the CPS acquisition and has served on CPS Holdings' board of directors since the closing of the LBO.
B. Business Operations and Products
10. CPS is headquartered at 4710 Industrial Corridor Drive, Akron, Ohio 44308. CPS's principal business is the design, manufacture, and sale of specialty chemical packaging and industrial containment products. The company's product lines include:
(a) HDPE (High-Density Polyethylene) Drums. CPS manufactures a comprehensive range of HDPE drums used for the storage and transport of liquid and semi-liquid chemicals. These drums are available in standard sizes ranging from 15 to 55 gallons and are manufactured to meet applicable United Nations (UN) packaging performance standards and United States Department of Transportation (DOT) specifications for the transport of hazardous materials.
(b) Intermediate Bulk Containers ("IBCs"). CPS produces composite and all-plastic IBCs used for the bulk transport and storage of industrial chemicals and agricultural products. IBCs typically range from 275 to 330 gallons in capacity and are designed for repeat use, with integrated pallet bases and discharge valves.
(c) Steel Pails. CPS manufactures open-head and tight-head steel pails in various sizes, used primarily for the packaging of adhesives, coatings, inks, and other specialty chemicals.
(d) Specialty Containment Vessels. CPS designs and manufactures custom-engineered containment vessels for specialty applications in the petrochemical and chemical processing industries, including overpack drums, salvage drums, and secondary containment systems.
11. CPS serves a diverse base of customers in the chemical, petrochemical, and agricultural sectors, including several Fortune 500 companies. The company's products are critical components of its customers' supply chains, as they are required for the safe storage, transport, and regulatory-compliant handling of hazardous and non-hazardous chemicals and industrial materials.
12. As of the Petition Date, CPS employed approximately 1,420 individuals across four manufacturing plants. The Debtors' workforce includes skilled machine operators, extrusion technicians, quality assurance and quality control personnel, maintenance technicians, logistics and warehouse staff, and corporate administrative and management personnel. CPS's workforce is a critical asset of the company, and the retention of these employees is essential to the preservation of the Debtors' going-concern value.
C. Manufacturing Facilities
13. The Debtors operate four manufacturing facilities and one leased warehouse, as set forth in the table below:
14. The Akron HQ facility (Plant 1) is the Debtors' largest manufacturing site and houses both the company's corporate offices and its primary HDPE drum production lines. The Evansville facility (Plant 2) focuses on IBC and steel pail manufacturing and serves customers throughout the Midwest and Southeast regions. The Baton Rouge facility (Plant 3) specializes in the manufacture of specialty containment vessels, primarily for the Gulf Coast petrochemical market. The Ravenna facility (Plant 4) houses the Debtors' extrusion lines and secondary processing operations, including blow molding, labeling, and finishing.
15. In addition to the four manufacturing plants, the Debtors maintain a leased warehouse at 900 Darrow Road, Akron, Ohio 44305, which is leased from Benchmark Real Estate Holdings LLC. The warehouse lease expires on December 31, 2025, and the monthly rent under the lease is $42,000. As of the Petition Date, the Debtors are current on rent payments under this warehouse lease, subject to the arrearage discussed in Section II.D below.
D. Key Contracts and Commercial Relationships
16. The Debtors are parties to a number of key contracts and commercial relationships that are essential to the continued operation of their business. The most significant of these are summarized below.
17. Resin Supply Agreement. CPS is a party to a five-year Resin Supply Agreement with Northstar Polymers Inc. ("Northstar"), a specialty polymer and resin supplier headquartered in Houston, Texas. The agreement, dated March 1, 2019, provides for the supply of HDPE resin and other polymer feedstock that is critical to CPS's HDPE drum and IBC production operations. HDPE resin is the single largest input cost in the Debtors' manufacturing process, and the Northstar relationship is a cornerstone of the Debtors' supply chain. As discussed further below, Northstar is among the Debtors' most significant critical vendors, and the Debtors seek authority to pay Northstar's prepetition claims as part of the Critical Vendor Motion.
18. Equipment Lease. CPS is a party to a seven-year master equipment lease with Meridian Industrial Leasing Corp. ("Meridian") for extrusion equipment located at Plant 4 (Ravenna). The monthly lease payment under the Meridian master lease is $87,500. The extrusion equipment subject to this lease is essential to the Debtors' manufacturing operations at the Ravenna facility, and the Debtors intend to continue making payments under this lease during the pendency of the Chapter 11 cases in order to maintain access to this critical equipment.
19. Warehouse Lease. As noted above, CPS leases warehouse space at 900 Darrow Road, Akron, Ohio 44305, from Benchmark Real Estate Holdings LLC ("Benchmark"). The monthly rent under the Benchmark lease is $42,000, and the lease expires on December 31, 2025. As of the Petition Date, the Debtors are approximately three months in arrears on rent payments under the Benchmark lease, resulting in a prepetition cure amount of approximately $126,000. The Debtors intend to assume this lease and cure the arrearage in connection with the plan of reorganization or by separate motion.
E. Officers and Key Personnel
20. The Debtors' senior management team is led by the following officers:
(a) Marcus J. Reinholdt — Chief Executive Officer. Mr. Reinholdt has served as CEO of CPS since 2017 and is responsible for the overall strategic direction and management of the company's operations.
(b) Dana Kowalski — Chief Financial Officer (the declarant). I have served as CFO of CPS since March 2019 and am responsible for all financial planning, reporting, treasury, tax, and accounting functions.
(c) Preston Yee — General Counsel. Mr. Yee has served as General Counsel of CPS since 2018 and is responsible for all legal affairs of the Debtors, including regulatory compliance, commercial contracts, and litigation.
21. The continued service and dedication of the Debtors' management team and workforce is essential to the successful execution of the restructuring and the preservation of the Debtors' going-concern value. The Debtors' management has been actively engaged in the prepetition restructuring negotiations described herein and will continue to oversee the Debtors' day-to-day operations throughout the Chapter 11 process.
III. FINANCIAL OVERVIEW
A. Historical Financial Performance
22. For the fiscal year ended December 31, 2021 ("FY2021"), CPS reported total revenue of approximately $312.6 million and earnings before interest, taxes, depreciation, and amortization ("EBITDA") of approximately $38.4 million. The company's revenue declined approximately 18% from fiscal year 2020 ("FY2020") to FY2021, driven principally by significant increases in the cost of HDPE resin and other raw materials, broader supply chain disruption that impaired production efficiency and on-time delivery performance, and the resulting compression of profit margins. While CPS attempted to pass through a portion of the increased input costs to its customer base through negotiated price adjustments, competitive market dynamics limited the company's ability to fully offset the increased costs, and margins remained under significant pressure throughout FY2021.
23. Financial performance continued to deteriorate during the first quarter of 2022 ("Q1 2022"). For the trailing twelve-month period ended March 31, 2022, the Debtors' EBITDA was approximately $29.1 million, reflecting continued margin compression as resin and raw material costs remained elevated and customer pricing adjustments lagged input cost increases. The decline in EBITDA had a material adverse effect on the Debtors' ability to service their existing debt obligations and comply with the financial covenants contained in the First Lien Credit Agreement, as described in Section IV below.
B. Capital Structure as of the Petition Date
24. As of the Petition Date, the Debtors' funded debt obligations totaled approximately $247.3 million, consisting of the following:
25. First Lien Credit Facility. The first lien revolving credit facility (the "Revolver") and the first lien term loan (the "Term Loan," and together with the Revolver, the "First Lien Credit Facility") were entered into on October 13, 2017, pursuant to a Credit Agreement (the "First Lien Credit Agreement") among CPS, as borrower, CPS Holdings, as guarantor, Ridgeline National Bank, N.A., as administrative agent and collateral agent ("Ridgeline"), and the lenders party thereto from time to time. Ridgeline maintains its principal offices at 200 Public Square, Cleveland, Ohio 44114. As of the Petition Date, $32.6 million was drawn on the $40.0 million Revolver commitment, and $158.7 million remained outstanding on the Term Loan (which had an original principal balance of $175.0 million, with the balance reduced through scheduled amortization payments). The aggregate first lien secured claims under the First Lien Credit Agreement are approximately $191.3 million.
26. Second Lien Notes. On October 13, 2017, in connection with the closing of the LBO, CPS issued $60.0 million in aggregate principal amount of 9.75% Senior Secured Second Lien Notes due 2025 (the "Second Lien Notes," CUSIP: 22761TAA3) pursuant to an Indenture (the "Second Lien Notes Indenture") among CPS, as issuer, CPS Holdings, as guarantor, and Continental Fiduciary Trust Company, as indenture trustee (the "Indenture Trustee"). The Indenture Trustee maintains its principal offices at 101 Barclay Street, New York, New York 10286. In 2019, CPS repurchased $4.0 million in aggregate principal amount of the Second Lien Notes in open-market transactions, reducing the outstanding principal amount to $56.0 million as of the Petition Date. In addition, as a result of the Notice of Default described in Section IV.B below, default-rate interest at an additional 2.00% per annum has been accruing on the Second Lien Notes since April 22, 2022. As of the Petition Date, accrued interest on the Second Lien Notes (including default-rate interest) is approximately $3.9 million, bringing the total estimated Second Lien claims to approximately $59.9 million.
27. Both the First Lien Credit Agreement and the Second Lien Notes Indenture were entered into on October 13, 2017, in connection with the closing of Thornfield's leveraged acquisition of CPS Holdings. The obligations under both instruments are secured by substantially all of the assets of CPS and guaranteed by CPS Holdings, with the liens securing the First Lien Credit Facility having priority over the liens securing the Second Lien Notes pursuant to an Intercreditor Agreement dated October 13, 2017.
C. Employer Identification Numbers
28. The federal employer identification numbers for each of the Debtors are as follows:
• Crestline Packaging Solutions LLC: 31-1782094
• CPS Holdings Inc.: 82-3491657
IV. EVENTS LEADING TO THE CHAPTER 11 FILING
A. Covenant Breach
29. Section 7.11 of the First Lien Credit Agreement contains a financial maintenance covenant requiring CPS to maintain a maximum leverage ratio — defined as the ratio of Total Net Debt to EBITDA — not to exceed 5.75x (the "Leverage Covenant"). The Leverage Covenant is tested on a quarterly basis as of the end of each fiscal quarter based on the trailing twelve-month EBITDA figure.
30. As of the end of Q1 2022 (March 31, 2022), the Debtors' actual leverage ratio was calculated as follows:
Total Net Debt: $247.3 million ÷ TTM EBITDA: $29.1 million = 8.50x
31. The Debtors' leverage ratio of 8.50x exceeded the maximum permitted level of 5.75x by 2.75x, representing a breach of 47.8% above the covenant ceiling. This significant breach constituted an event of default under Section 7.11 of the First Lien Credit Agreement.
32. The primary causes of the Debtors' financial deterioration and the resulting covenant breach were threefold: (i) significant increases in the cost of HDPE resin and other raw materials, which are the Debtors' largest variable input costs and are subject to commodity price fluctuations beyond the Debtors' control; (ii) supply chain disruptions, including transportation bottlenecks, labor shortages at upstream suppliers, and delays in the delivery of critical components, all of which impaired the Debtors' production efficiency and ability to fulfill customer orders on a timely basis; and (iii) the inability to fully pass through increased input costs to customers in a competitive market environment, which resulted in sustained margin compression throughout FY2021 and the first quarter of FY2022.
B. Notice of Default
33. On April 22, 2022, Ridgeline National Bank, N.A., acting in its capacity as administrative agent under the First Lien Credit Agreement, delivered a formal Notice of Default (the "Notice of Default") to CPS, citing the breach of Section 7.11 of the First Lien Credit Agreement (the Leverage Covenant). The Notice of Default stated that the leverage ratio breach constituted an "Event of Default" under Section 8.01(c) of the First Lien Credit Agreement and that, as a consequence, the administrative agent reserved all rights and remedies available under the First Lien Credit Agreement, applicable law, or otherwise.
34. The Notice of Default also triggered a cross-default under Section 6.01(e) of the Second Lien Notes Indenture, which provides that the occurrence of a payment or covenant default under the First Lien Credit Agreement constitutes an event of default under the Second Lien Notes Indenture if such default results in acceleration or permits the holders of the relevant debt to accelerate the maturity thereof.
35. As a result of the defaults under the First Lien Credit Agreement and the Second Lien Notes Indenture, the lenders under the First Lien Credit Agreement and the holders of the Second Lien Notes obtained acceleration rights, and default-rate interest began accruing under both instruments. The default-rate interest under the Second Lien Notes Indenture is 2.00% per annum in excess of the stated coupon rate of 9.75%, resulting in an effective interest rate of 11.75% during the pendency of the default. The additional default-rate interest accruing on the Second Lien Notes from April 22, 2022 through the Petition Date contributed to the approximately $3.9 million in total accrued interest on the Second Lien Notes referenced in Section III.B above.
C. Forbearance Agreement
36. Following receipt of the Notice of Default, the Debtors immediately engaged with Ridgeline and the company's key creditor constituencies to negotiate a consensual path forward. These negotiations were conducted with the assistance of the Debtors' restructuring counsel, Calderwood & Harkness LLP, and financial advisor, Aldersgate Advisory Group LLC.
37. During the course of these negotiations, the Ad Hoc Group of First Lien Lenders (as defined below) organized and retained counsel. The Ad Hoc Group held approximately 68% in aggregate principal amount of the outstanding first lien term loan and represented a critical constituency in the restructuring process.
38. On May 18, 2022, the Debtors, Ridgeline (as administrative agent), and the consenting first lien lenders executed a Forbearance Agreement (the "Forbearance Agreement"), pursuant to which the consenting first lien lenders agreed to forbear from exercising their rights and remedies arising from the existing defaults for an initial period of 45 days (through July 2, 2022). The Forbearance Agreement was subject to customary conditions, including the Debtors' compliance with certain reporting requirements, cash management restrictions, and limitations on capital expenditures during the forbearance period.
39. On July 1, 2022, the Forbearance Agreement was extended for an additional period of approximately two weeks, through July 15, 2022, to allow the Debtors and their creditor constituencies to finalize the terms of the Restructuring Support Agreement described below. Throughout the forbearance period, the Debtors engaged in active and intensive negotiations with all major creditor constituencies, including the Ad Hoc Group of First Lien Lenders, the Ad Hoc Group of Second Lien Noteholders, and the Debtors' private equity sponsor, Thornfield.
D. Prepetition Restructuring Negotiations
40. In anticipation of the restructuring, the Debtors retained Calderwood & Harkness LLP ("Calderwood & Harkness") as their restructuring counsel and Aldersgate Advisory Group LLC ("Aldersgate") as their financial advisor and investment banker. Aldersgate's engagement has been led by Priya Narayanan, Managing Director. These professionals have extensive experience in complex corporate restructurings and have been instrumental in guiding the Debtors through the negotiation process.
41. During the prepetition period, two principal creditor constituencies organized and retained separate legal counsel:
(a) Ad Hoc Group of First Lien Lenders. An ad hoc group of holders of the first lien term loan (the "Ad Hoc Group of First Lien Lenders") was organized, holding approximately 68% in aggregate principal amount of the outstanding Term Loan. Key members of the Ad Hoc Group of First Lien Lenders include:
• Blackmoor Capital Management LLC (contact: Arthur Ng), holding approximately $41.2 million in Term Loan claims;
• Greystone Fixed Income Partners LP (contact: Sandra Ibanez), holding approximately $28.6 million in Term Loan claims; and
• Wexford Opportunity Fund III LP (contact: Derek Loomis), holding approximately $37.9 million in Term Loan claims.
The Ad Hoc Group of First Lien Lenders retained Hargrove, Mitchell & Saunders LLP as its legal counsel, with Victoria Kline serving as lead partner. Hargrove, Mitchell & Saunders LLP maintains offices at 51 West 52nd Street, New York, New York 10019.
(b) Ad Hoc Group of Second Lien Noteholders. An ad hoc group of holders of the Second Lien Notes (the "Ad Hoc Group of Second Lien Noteholders") was organized, holding approximately 72% in aggregate principal amount of the outstanding Second Lien Notes. Key members of the Ad Hoc Group of Second Lien Noteholders include:
• Fenwick Structured Credit Fund II LP (contact: Liam Driscoll), holding approximately $18.3 million in Second Lien Notes; and
• Millhaven Capital Advisors LLC (contact: Karen Ostrowski), holding approximately $22.1 million in Second Lien Notes.
The Ad Hoc Group of Second Lien Noteholders retained Pemberton & Locke LLP as its legal counsel, with Raymond Delvecchio serving as lead partner. Pemberton & Locke LLP maintains offices at 1 Liberty Plaza, New York, New York 10006.
42. Following extensive arm's-length negotiations among the Debtors, Thornfield, the Ad Hoc Group of First Lien Lenders, and the Ad Hoc Group of Second Lien Noteholders — which negotiations involved multiple in-person sessions, dozens of conference calls, and the exchange of numerous term sheets, financial models, and draft documents — the parties reached agreement on the material terms of a prepackaged plan of reorganization (the "Plan").
E. Restructuring Support Agreement
43. On July 8, 2022, the Debtors, CPS Holdings, Thornfield, the Ad Hoc Group of First Lien Lenders, and the Ad Hoc Group of Second Lien Noteholders executed a Restructuring Support Agreement (the "RSA"), which memorializes the parties' agreement on the key terms of the restructuring and the prepackaged Plan.
44. I note for the Court's benefit that, while the RSA was formally executed on July 8, 2022 — after the Petition Date of June 20, 2022 — the key economic terms of the restructuring were substantially agreed upon among the parties during the prepetition period, and the Debtors' decision to file for Chapter 11 relief on June 20, 2022, was premised on the restructuring framework that is reflected in the RSA. The timing of the filing was driven by operational and liquidity considerations, including the need to obtain debtor-in-possession financing on an expedited basis, while the finalization of the RSA documentation required additional time to negotiate and draft the detailed terms, conditions, and milestones reflected therein.
45. The RSA includes the following key milestones:
(a) Petition Date: No later than July 31, 2022 (actual filing: June 20, 2022);
(b) Disclosure Statement Approval: Within 45 days of the Petition Date;
(c) Plan Confirmation: Within 90 days of the Petition Date; and
(d) Effective Date: Within 15 business days of entry of the Confirmation Order.
46. The RSA contains customary provisions, including party commitments to support the Plan, vote in favor of the Plan (to the extent holding claims entitled to vote), and refrain from taking any action inconsistent with the RSA or the Plan. The RSA also includes termination events tied to the failure to achieve the milestones set forth above, the occurrence of material adverse changes, and other customary conditions.
F. Summary of Plan Economics
47. The Plan, as contemplated by the RSA, provides for the following treatment of claims and interests:
(a) Class 2 — First Lien Secured Claims (approximately $191.3 million, consisting of $158.7 million in Term Loan claims and $32.6 million in Revolver claims): Holders of allowed first lien secured claims shall receive their pro rata share of (i) 92% of the reorganized equity of Reorganized CPS and (ii) $12.5 million in aggregate principal amount of new first lien take-back term loans issued by Reorganized CPS on the Effective Date.
(b) Class 3 — Second Lien Secured Claims (approximately $59.9 million, including accrued interest and default-rate interest): Holders of allowed second lien secured claims shall receive their pro rata share of (i) 8% of the reorganized equity of Reorganized CPS and (ii) warrants to purchase up to an additional 5% of the reorganized equity at a strike price equal to the plan equity value.
(c) Class 4 — General Unsecured Claims (approximately $14.8 million): Holders of allowed general unsecured claims shall receive their pro rata share of a $1.5 million cash distribution pool, resulting in an estimated recovery of approximately 10.1 cents on the dollar.
(d) Class 6 — Existing Equity Interests (held by Thornfield): All existing equity interests in CPS Holdings shall be cancelled and extinguished on the Effective Date, and Thornfield shall receive no distribution on account of its equity interests.
(e) Management Incentive Plan: 10% of the reorganized equity shall be reserved for a post-emergence Management Incentive Plan ("MIP"), diluting all classes of equity recipients on a pro rata basis. The specific terms of the MIP, including vesting schedules, performance targets, and individual allocations, shall be determined by the board of directors of Reorganized CPS following the Effective Date.
G. Decision to File
48. After careful consideration, and in consultation with their restructuring counsel, financial advisor, and other professionals, the Debtors determined that a prepackaged Chapter 11 filing was the best available path to implement the restructuring contemplated by the RSA on an expeditious basis, preserve the Debtors' going-concern value, and maximize recoveries for all creditor constituencies. The prepackaged approach was specifically selected to minimize the duration and cost of the Chapter 11 cases and to avoid the significant operational disruption that would be associated with a prolonged bankruptcy proceeding. Given the nature of the Debtors' business — which requires uninterrupted access to raw material suppliers, equipment, and a skilled workforce — a swift restructuring is essential to preserving value.
49. In preparation for the filing, the Debtors engaged Kellner & Hartwick LLP ("Kellner & Hartwick") as local co-counsel in the Northern District of Ohio. Bruce Tatelman is the lead partner at Kellner & Hartwick responsible for the Debtors' engagement. Kellner & Hartwick maintains offices at 600 Superior Avenue East, Suite 1800, Cleveland, Ohio 44114.
50. Additionally, in anticipation of the filing, the Debtors obtained a directors' and officers' liability insurance tail policy (the "D&O Tail Policy") from Apex Indemnity Insurance Company, providing an aggregate coverage limit of $15.0 million. The tail premium for this policy was $1.2 million, which was paid prepetition. The D&O Tail Policy is designed to protect the Debtors' current and former directors and officers against potential claims arising from prepetition conduct and is a standard and customary measure in connection with a corporate restructuring of this nature.
V. PROFESSIONALS RETAINED BY THE DEBTORS
51. In connection with the restructuring and the filing of these Chapter 11 cases, the Debtors have retained the following professional firms, each of which will seek formal Court approval of its retention in accordance with the applicable provisions of the Bankruptcy Code and Bankruptcy Rules:
(a) Calderwood & Harkness LLP — Restructuring Counsel. Calderwood & Harkness LLP serves as the Debtors' primary restructuring counsel. The firm maintains offices at 30 Rockefeller Plaza, New York, New York 10112 and 127 Public Square, Suite 4100, Cleveland, Ohio 44114. The engagement team consists of Colette Whitman (responsible partner), Nathaniel Bower (billing partner), Gabrielle Moss (lead associate), and Amy Chesterton (working associate). Calderwood & Harkness received a retainer of $500,000 from the Debtors on June 10, 2022.
(b) Kellner & Hartwick LLP — Local Co-Counsel. Kellner & Hartwick LLP serves as the Debtors' local co-counsel in the Northern District of Ohio. The firm is located at 600 Superior Avenue East, Suite 1800, Cleveland, Ohio 44114. Bruce Tatelman is the lead partner on the engagement. Estimated fees for Kellner & Hartwick's representation are approximately $380,000.
(c) Aldersgate Advisory Group LLC — Financial Advisor and Investment Banker. Aldersgate Advisory Group LLC serves as the Debtors' financial advisor and investment banker. The firm is located at 280 Park Avenue, 12th Floor, New York, New York 10017. The engagement is led by Priya Narayanan, Managing Director. Aldersgate's compensation includes a monthly advisory fee of $175,000 and a restructuring completion fee of $3.5 million, payable upon the effective date of a confirmed plan of reorganization.
(d) Dralvecen Reyes Linley CPAs LLP & Associates LLP — Tax and Accounting Advisor. Dralvecen Reyes Linley CPAs LLP & Associates LLP serves as the Debtors' tax and accounting advisor. The firm is located at 191 North Wacker Drive, Suite 2300, Chicago, Illinois 60606. Catherine Holtz is the lead partner on the engagement.
(e) Pinnacle Claims Administration LLC — Claims and Noticing Agent. Pinnacle Claims Administration LLC has been engaged to serve as claims and noticing agent in the Chapter 11 cases. Pinnacle is located at 1010 Dale Street North, St. Paul, Minnesota 55117. Estimated fees for Pinnacle's services are approximately $285,000.
52. Applications for the retention of each of the foregoing professionals are being or will be filed with the Court in accordance with Sections 327, 328, and 330 of the Bankruptcy Code and the applicable Bankruptcy Rules and Local Rules.
VI. FACTS IN SUPPORT OF THE FIRST DAY MOTIONS
53. Set forth below is a summary of the factual basis supporting each of the First Day Motions. Additional facts, legal authorities, and detailed argument in support of each motion are set forth in the respective pleadings and memoranda of law filed in support thereof. The descriptions provided herein are intended to supplement, and not to replace, the factual and legal arguments contained in the First Day Motions themselves.
A. Motion for Joint Administration
54. The Debtors have filed a motion, pursuant to Bankruptcy Rule 1015(b) and Local Rule 1015-1, for joint administration of the Chapter 11 cases of CPS (Case No. 22-51247) and CPS Holdings (Case No. 22-51248).
55. CPS and CPS Holdings are affiliated debtors with common ownership and management. As described above, CPS Holdings is the direct parent of CPS and holds 100% of CPS's equity interests. CPS Holdings has no independent operations, no employees, no revenue, and no assets other than its equity interest in CPS. The two entities share common officers and directors, and their financial and legal affairs are closely intertwined.
56. Joint administration of the two cases under a single docket (Case No. 22-51247) will promote administrative efficiency, avoid duplicative filings, motions, notices, and hearings, and reduce administrative costs for the estates and their creditors. Specifically, joint administration will allow the Debtors to file a single set of schedules and statements, serve consolidated notices, and present a single prepackaged plan of reorganization and disclosure statement, rather than separate filings for each estate. These efficiencies will benefit all parties in interest.
57. Importantly, the Debtors are not seeking substantive consolidation of the two estates. Claims against and assets of each Debtor will remain separate and distinct, and creditors' rights against each individual Debtor will not be affected by the joint administration of the cases. The relief sought is purely procedural in nature and will not prejudice any party in interest.
B. Motion to Approve Pinnacle Claims Administration LLC as Claims and Noticing Agent
58. The Debtors have filed a motion, pursuant to 28 U.S.C. § 156(c) and the applicable Local Rules, to retain Pinnacle Claims Administration LLC ("Pinnacle") as claims and noticing agent in the Chapter 11 cases.
59. The Debtors have hundreds of creditors and other parties in interest who are entitled to receive notice in these Chapter 11 cases. The volume of potential creditors, interest holders, and other parties entitled to notice is sufficiently large that the Clerk of the Bankruptcy Court would otherwise bear a significant administrative burden in processing and serving the required notices.
60. Pinnacle has extensive experience serving as claims and noticing agent in Chapter 11 cases of comparable size and complexity. Pinnacle will be responsible for, among other things: (a) maintaining the official claims register in these cases; (b) receiving, docketing, and maintaining proofs of claim and all related documentation; (c) serving all required notices, including notice of the filing of the Chapter 11 petitions, the disclosure statement and plan, bar date notices, and all other notices required to be served under the Bankruptcy Code and Bankruptcy Rules; and (d) tabulating votes on the Debtors' prepackaged plan of reorganization.
61. Pinnacle's retention is warranted under 28 U.S.C. § 156(c) and will relieve the Clerk of the Bankruptcy Court of the administrative burden of processing the large volume of claims and notices in these cases. Pinnacle's estimated fees are approximately $285,000. Pinnacle maintains its principal offices at 1010 Dale Street North, St. Paul, Minnesota 55117.
C. Motion to Authorize Payment of Prepetition Critical Vendor Claims
62. The Debtors have filed a motion seeking entry of an order authorizing, but not directing, the Debtors to pay prepetition claims owed to certain critical vendors in an aggregate amount not to exceed $6.8 million.
63. The Debtors' critical vendors include suppliers of HDPE resin, steel, specialty chemicals, and other raw materials and components that are essential to the Debtors' manufacturing operations, as well as essential logistics and transportation providers without whom the Debtors would be unable to receive raw materials at their manufacturing facilities or deliver finished products to their customers.
64. Among the most significant of the Debtors' critical vendors is Northstar Polymers Inc., with whom CPS maintains a five-year Resin Supply Agreement dated March 1, 2019. As described above, Northstar is the Debtors' primary supplier of HDPE resin and other polymer feedstock, which are the principal raw materials used in the manufacture of HDPE drums and IBCs — the Debtors' two largest product lines by revenue. Any disruption of the supply relationship with Northstar would cause immediate and severe harm to the Debtors' operations, as HDPE resin is not a commodity that can be readily sourced from alternative suppliers on short notice, particularly given current market conditions and the specific grades and specifications required by CPS's manufacturing processes.
65. In addition to Northstar, the Debtors' critical vendor list includes other key raw material and component suppliers, specialized packaging and labeling vendors, and logistics and transportation providers. The Debtors' management, in consultation with their financial advisor, Aldersgate Advisory Group LLC, has carefully identified the specific vendors whose prepetition claims should be paid to preserve the Debtors' manufacturing operations and customer relationships. This analysis was conducted on a vendor-by-vendor basis, taking into account the availability of alternative supply sources, the lead times required to qualify and onboard replacement vendors, the contractual terms governing the Debtors' relationships with each vendor, and the potential operational and financial consequences of a supply disruption.
66. Without timely payment to these critical vendors, the Debtors' four manufacturing plants would face production shutdowns, customer losses, and destruction of going-concern value that would far exceed the aggregate amount of the critical vendor payments. The Debtors believe that the proposed critical vendor payments are in the best interests of the estates and their creditors and are authorized under the "doctrine of necessity" or "necessity of payment" doctrine, which permits a bankruptcy court to authorize the payment of prepetition claims where such payment is essential to the debtor's continued operations and the preservation of estate value.
67. The proposed critical vendor payments are supported by the Debtors' 13-week cash flow budget and the DIP financing facility described below, and the Debtors have sufficient liquidity to fund the critical vendor payments without prejudice to other administrative obligations.
D. Motion to Authorize Payment of Prepetition Employee Wages and Benefits
68. The Debtors have filed a motion seeking entry of an order authorizing, but not directing, the Debtors to honor and pay prepetition obligations to their employees for wages, salaries, benefits, and related obligations.
69. As of the Petition Date, the Debtors employ approximately 1,420 individuals across their four manufacturing facilities and corporate offices. The Debtors' workforce is the backbone of the company's operations and includes highly skilled and specialized personnel who would be extremely difficult or impossible to replace in the current labor market. Specifically, the Debtors' manufacturing workforce includes machine operators, extrusion technicians, quality assurance and quality control personnel, maintenance technicians, and logistics staff, many of whom have received specialized training on the Debtors' proprietary equipment and manufacturing processes. The loss of even a modest number of these skilled workers would materially impair the Debtors' ability to maintain production levels at their four plants and would jeopardize the Debtors' ability to fulfill existing customer orders and preserve key customer relationships.
70. The Debtors seek authority to honor the following prepetition obligations owed to their employees:
(a) Accrued but unpaid wages and salaries;
(b) Accrued but unpaid commissions;
(c) Health and welfare benefits, including medical, dental, vision, life insurance, and short-term and long-term disability insurance premiums and claims;
(d) Workers' compensation obligations and premiums;
(e) Related payroll taxes and withholdings, including federal and state income tax withholdings, FICA contributions, and unemployment insurance taxes;
(f) Matching and employer contributions to 401(k) retirement plans and other retirement and savings plan contributions; and
(g) Paid time off ("PTO") and vacation obligations accrued prepetition.
71. Failure to honor these obligations would cause immediate and irreparable harm to the Debtors' operations and the estates. Many of the Debtors' employees live paycheck to paycheck and depend on the timely receipt of their wages and benefits to meet their daily living expenses. If the Debtors fail to pay accrued wages and benefits, employees will have no choice but to seek employment elsewhere, resulting in mass departures, a catastrophic loss of institutional knowledge, and the inability to maintain production at all four manufacturing plants. The operational and financial consequences of such an outcome would be devastating and would far exceed the cost of honoring the Debtors' prepetition employee obligations.
72. Employee claims for prepetition wages and salaries are entitled to priority under Section 507(a)(4) of the Bankruptcy Code, which provides priority for allowed unsecured claims for wages, salaries, and commissions earned within 180 days before the date of the filing of the petition or the date of the cessation of the debtor's business, whichever occurs first, to the extent of $15,150 per individual. Employee benefit plan contributions are entitled to priority under Section 507(a)(5) of the Bankruptcy Code.
73. Based on my review of the Debtors' payroll records and employee benefit plan records, I believe that all of the Debtors' prepetition employee obligations that the Debtors seek to honor pursuant to this motion fall within the priority caps established by Sections 507(a)(4) and 507(a)(5). Accordingly, the proposed payments will not result in the payment of any obligation that would not otherwise be entitled to priority treatment and, ultimately, payment in full under a plan of reorganization. Payment of these obligations now, rather than deferring such payment until plan confirmation, is essential to retaining the Debtors' workforce and maintaining production operations during the pendency of the Chapter 11 cases.
E. Motion for Interim and Final Approval of DIP Financing
74. The Debtors have filed a motion seeking entry of interim and final orders approving a $30.0 million senior secured superpriority revolving debtor-in-possession credit facility (the "DIP Facility") to fund the Debtors' operations during the pendency of the Chapter 11 cases.
75. The key terms of the DIP Facility are as follows:
(a) DIP Lender. Ridgeline National Bank, N.A., as administrative agent, and the consenting first lien lenders under the First Lien Credit Agreement who have agreed to provide the DIP Facility.
(b) DIP Facility Amount. $30.0 million revolving credit facility.
(c) Interest Rate. SOFR plus 500 basis points; upon the occurrence and during the continuance of an event of default, the interest rate shall increase by an additional 200 basis points (the "Default Rate").
(d) Maturity. The earlier to occur of (i) 120 days after the Petition Date or (ii) the effective date of a confirmed plan of reorganization.
(e) Fees. A commitment fee of 1.50% of the total DIP Facility commitment ($450,000) and a closing fee of 2.00% of the total DIP Facility commitment ($600,000), both payable in full on the closing date.
(f) Budget. The Debtors shall operate in accordance with a 13-week rolling cash flow budget (the "DIP Budget"), which shall be updated and delivered to the DIP Lender on a bi-weekly basis. Permitted variances on disbursements: ±15%, tested bi-weekly.
(g) Security. The DIP Facility shall be secured by (i) a superpriority administrative expense claim under Section 364(c)(1) of the Bankruptcy Code with priority over all other administrative expense claims (other than the Carve-Out), and (ii) priming liens on substantially all of the Debtors' assets under Section 364(d) of the Bankruptcy Code, subject to existing permitted prior liens.
(h) Adequate Protection. In consideration of the priming liens granted to the DIP Lender, the prepetition first lien lenders shall receive adequate protection in the form of: (i) replacement liens on all DIP collateral, junior only to the DIP liens and permitted senior liens; (ii) superpriority administrative expense claims under Section 507(b) of the Bankruptcy Code; (iii) current cash payment of interest and fees accruing under the First Lien Credit Agreement during the pendency of the Chapter 11 cases; and (iv) the establishment and maintenance of professional fee reserves as provided in the DIP credit agreement and the applicable orders of the Court.
76. The DIP Credit Agreement is dated June 24, 2022, and was executed following the first day hearing. The DIP Facility was negotiated at arm's length between the Debtors and the DIP Lender with the active assistance of the Debtors' financial advisor, Aldersgate Advisory Group LLC. The Debtors, through Aldersgate, explored alternative sources of debtor-in-possession financing, including outreach to several institutional lenders, and determined that the proposed DIP Facility represents the best available financing on the most favorable terms reasonably obtainable, given the Debtors' circumstances, the existing lender group's detailed familiarity with the Debtors' operations and financial condition, and the willingness of the existing lender group to provide financing on an expedited basis.
77. Without the DIP Facility, the Debtors will lack sufficient liquidity to fund their day-to-day operations during the pendency of the Chapter 11 cases, pay employees, satisfy critical vendor obligations, and implement the prepackaged plan of reorganization on the timeline contemplated by the RSA. The DIP Facility is essential to the Debtors' ability to continue operating as a going concern, maintain production at their four manufacturing plants, retain their workforce, preserve customer relationships, and ultimately emerge from Chapter 11 as a viable reorganized enterprise.
78. The Debtors seek interim approval of the DIP Facility at the first day hearing, with a proposed interim order to be entered on June 24, 2022. The Debtors further seek final approval of the DIP Facility following notice and a final hearing, with a proposed final order to be entered thereafter. The final hearing on the DIP Facility was held on July 18, 2022, and the final order approving the DIP Facility was entered on that date.
VII. CONCLUSION
79. For the reasons set forth in this Declaration and in the First Day Motions filed contemporaneously herewith, the Debtors respectfully request that the Court grant the relief requested in each of the First Day Motions. Granting such relief is necessary and appropriate to preserve the Debtors' going-concern value, protect the Debtors' 1,420 employees, maintain critical commercial relationships with key suppliers and customers, and facilitate the Debtors' orderly and expeditious reorganization through the prepackaged plan of reorganization.
80. The relief requested in the First Day Motions is consistent with the objectives of Chapter 11 and in the best interests of the Debtors, their estates, and all creditor constituencies. Absent such relief, the Debtors face the risk of operational disruption, employee departures, supply chain failures, customer losses, and the potential destruction of hundreds of millions of dollars in going-concern value — consequences that would harm all stakeholders.
81. I am available and prepared to testify at the first day hearing scheduled for June 21, 2022, at such time as the Court may direct.
VERIFICATION
I, Dana Kowalski, declare under penalty of perjury under the laws of the United States of America that the foregoing is true and correct to the best of my knowledge, information, and belief.
Executed on: June 20, 2022 Akron, Ohio
________________________________________
Dana Kowalski Chief Financial Officer Crestline Packaging Solutions LLC 4710 Industrial Corridor Drive Akron, OH 44308
CERTIFICATE OF SERVICE
I hereby certify that on June 20, 2022, a true and correct copy of the foregoing Declaration of Dana Kowalski, Chief Financial Officer of Crestline Packaging Solutions LLC, in Support of Debtors' First Day Motions was served by electronic mail and/or first-class mail, postage prepaid, upon the following parties:
1. Office of the United States Trustee, Region 9
Howard M. Metzenbaum U.S. Courthouse 201 Superior Avenue Cleveland, OH 44114
2. Hargrove, Mitchell & Saunders LLP (counsel to the Ad Hoc Group of First Lien Lenders)
Attn: Victoria Kline, Esq.
51 West 52nd Street New York, NY 10019
3. Pemberton & Locke LLP (counsel to the Ad Hoc Group of Second Lien Noteholders)
Attn: Raymond Delvecchio, Esq.
1 Liberty Plaza New York, NY 10006
4. Ridgeline National Bank, N.A. (Administrative Agent and Collateral Agent under the First Lien Credit Agreement, and Administrative Agent under the DIP Credit Agreement)
200 Public Square Cleveland, OH 44114
5. Continental Fiduciary Trust Company (Indenture Trustee under the Second Lien Notes Indenture)
101 Barclay Street New York, NY 10286
6. All other parties entitled to notice under the Bankruptcy Rules, the Local Rules of the United States Bankruptcy Court for the Northern District of Ohio, and applicable orders of the Court.
________________________________________
Bruce Tatelman, Esq. KELLNER & HARTWICK LLP 600 Superior Avenue East, Suite 1800 Cleveland, OH 44114 Telephone: (216) 555-4200 Facsimile: (216) 555-4201
Email: btatelman@kellnerhartwick.com
Local Co-Counsel for the Debtors and Debtors in Possession
In re: | Case No. 22-51247
CRESTLINE PACKAGING SOLUTIONS LLC, et al.,¹ | Chapter 11
Debtors. | (Jointly Administered)
Facility | Address | Operations | Approx. Employees
Plant 1 (Akron HQ) | 4710 Industrial Corridor Drive, Akron, OH 44308 | Corporate headquarters; HDPE drum manufacturing | 480
Plant 2 (Evansville) | 2255 Commerce Parkway, Evansville, IN 47725 | IBC and steel pail manufacturing | 390
Plant 3 (Baton Rouge) | 8100 River Road, Baton Rouge, LA 70820 | Specialty containment vessels | 310
Plant 4 (Ravenna) | 1480 State Route 59, Ravenna, OH 44266 | Extrusion and secondary processing | 240
Warehouse (Akron) | 900 Darrow Road, Akron, OH 44305 | Warehousing and distribution | —
Instrument | Amount Outstanding | Original Amount | Interest Rate | Maturity
First Lien Revolving Credit Facility | $32.6 million | $40.0 million (commitment) | SOFR + 375 bps | October 13, 2022
First Lien Term Loan | $158.7 million | $175.0 million (original) | SOFR + 425 bps | October 13, 2024
9.75% Senior Secured Second Lien Notes | $56.0 million | $60.0 million (issued Oct. 13, 2017; $4.0M repurchased in open market in 2019) | 9.75% (fixed) | October 13, 2025
Total Funded Debt | $247.3 million