1006-00002 · Crestline Packaging Solutions LLC · Plan and Disclosure Statement

solicitation-procedures-motion.docx DOCUMENT Finance & Banking

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UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF OHIO EASTERN DIVISION

DEBTORS' MOTION FOR AN ORDER (I) APPROVING THE ADEQUACY OF THE PREPETITION SOLICITATION OF VOTES ON THE PREPACKAGED PLAN OF REORGANIZATION PURSUANT TO 11 U.S.C. § 1126(b) AND (II) ESTABLISHING SOLICITATION AND TABULATION PROCEDURES

Related Documents: Plan of Reorganization (Dkt. 47); Disclosure Statement (Dkt. 48)

The above-captioned debtors and debtors in possession (collectively, the "Debtors"), by and through their undersigned counsel, Calderwood & Harkness LLP and Kellner & Hartwick LLP, hereby move this Court (the "Motion") for entry of an order, substantially in the form attached hereto as Exhibit D (the "Proposed Order"), (i) approving the adequacy of the prepetition solicitation of votes on the Debtors' Prepackaged Plan of Reorganization (Dkt. 47) (the "Plan") as having been conducted in compliance with 11 U.S.C. § 1126(b) and applicable non-bankruptcy law, (ii) approving the Disclosure Statement (Dkt. 48) (the "Disclosure Statement") as containing "adequate information" within the meaning of 11 U.S.C. § 1125(a)(1), (iii) establishing solicitation and tabulation procedures as described herein, (iv) establishing August 3, 2022 as the voting deadline, and (v) designating Pinnacle Claims Administration LLC as the tabulation agent. In support of this Motion, the Debtors respectfully state as follows:

I. PRELIMINARY STATEMENT

1. On June 20, 2022 (the "Petition Date"), Crestline Packaging Solutions LLC ("Crestline" or "CPS"), an Ohio limited liability company, and CPS Holdings Inc. ("CPS Holdings"), a Delaware corporation (collectively, the "Debtors"), each filed a voluntary petition for relief under Chapter 11 of Title 11 of the United States Code, 11 U.S.C. §§ 101–1532 (the "Bankruptcy Code"), in the United States Bankruptcy Court for the Northern District of Ohio, Eastern Division (the "Court"). The Debtors continue to operate their businesses and manage their properties as debtors in possession pursuant to Sections 1107(a) and 1108 of the Bankruptcy Code.

2. Simultaneously with the filing of their Chapter 11 petitions, the Debtors filed the Plan and the Disclosure Statement with this Court. The Plan embodies the comprehensive restructuring of the Debtors' balance sheet, which was the product of months of intensive, arm's-length negotiations among the Debtors, their secured creditor constituencies, and their equity sponsor, Thornfield Capital Partners LP ("Thornfield"). The Plan is supported by holders of a supermajority of the Debtors' first lien secured debt and second lien secured notes, as well as by Thornfield.

3. Prior to the Petition Date, in accordance with the customary practice in prepackaged Chapter 11 cases, the Debtors conducted a prepetition solicitation of votes on the Plan from holders of claims in Classes 2, 3, and 4 of the Plan — the three impaired classes of claims entitled to vote on the Plan under Section 1126 of the Bankruptcy Code. The prepetition solicitation was conducted in strict compliance with applicable non-bankruptcy law, including Sections 4(a)(2) and 18 of the Securities Act of 1933, as amended (the "Securities Act"), and Regulation D promulgated thereunder, as well as the requirements of 11 U.S.C. § 1126(b). As described in greater detail below, the Disclosure Statement transmitted to holders of claims in the voting classes contained all information material and necessary for an informed voting decision, including a comprehensive description of the Debtors' business and assets, a detailed summary of the Plan's treatment of each class of claims and interests, a valuation analysis prepared by the Debtors' financial advisor, a liquidation analysis, financial projections, and a thorough discussion of risk factors associated with the Plan and the reorganized Debtors.

4. By this Motion, the Debtors seek entry of an order:

(a) approving the prepetition solicitation as having been conducted in compliance with 11 U.S.C. § 1126(b) and applicable non-bankruptcy law, including Sections 4(a)(2) and 18 of the Securities Act and Regulation D thereunder;

(b) approving the Disclosure Statement as having contained "adequate information" within the meaning of 11 U.S.C. § 1125(a)(1);

(d) setting August 3, 2022 as the voting deadline (the "Voting Deadline") for receipt of all ballots;

(e) designating Pinnacle Claims Administration LLC ("Pinnacle") as the tabulation agent for the Plan; and

(f) approving the forms of ballot attached hereto as Exhibits A, B, and C.

5. As will be confirmed by the Tabulation Declaration of Pinnacle to be filed with this Court promptly following the Voting Deadline, all three impaired voting classes — Class 2 (First Lien Secured Claims), Class 3 (Second Lien Secured Claims), and Class 4 (General Unsecured Claims) — have voted to accept the Plan by the requisite statutory majorities set forth in Section 1126(c) of the Bankruptcy Code (i.e., acceptance by holders of at least two-thirds in amount and more than one-half in number of the allowed claims of each class that have voted on the Plan). Accordingly, the Debtors anticipate proceeding promptly to confirmation of the Plan at a confirmation hearing currently expected to be scheduled for August 29, 2022.

II. JURISDICTION AND VENUE

6. This Court has jurisdiction over this Motion pursuant to 28 U.S.C. §§ 157 and 1334 and the General Order of Reference entered by the United States District Court for the Northern District of Ohio. This is a core proceeding under 28 U.S.C. § 157(b)(2)(A) (matters concerning the administration of the estate) and 28 U.S.C. § 157(b)(2)(L) (confirmations of plans). The Debtors confirm that they consent to the entry of a final order by this Court to the extent that it is later determined that this Court, absent consent of the parties, cannot enter final orders or judgments consistent with Article III of the United States Constitution.

7. Venue is proper in this district pursuant to 28 U.S.C. §§ 1408 and 1409. Crestline Packaging Solutions LLC is an Ohio limited liability company with its principal place of business and headquarters located at 4710 Industrial Corridor Drive, Akron, OH 44308, which is within the Northern District of Ohio, Eastern Division. CPS Holdings Inc. is a Delaware corporation that, as the direct parent of CPS, has its principal office in Ohio.

8. The statutory predicates for the relief sought herein are 11 U.S.C. §§ 105(a), 1125, 1126(b), and 1128, and Rules 2002(b), 3017, and 3018 of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules").

III. BACKGROUND

A. General Background and Business Overview

9. Crestline Packaging Solutions LLC is an Ohio limited liability company headquartered at 4710 Industrial Corridor Drive, Akron, OH 44308. Founded in 1987, CPS is a leading manufacturer of rigid industrial packaging solutions, including high-density polyethylene ("HDPE") drums, intermediate bulk containers ("IBCs"), steel pails, and specialty containment vessels. CPS's products are sold to customers in the chemical, petrochemical, and agricultural sectors throughout the United States and, to a limited extent, Canada and Mexico.

10. CPS operates four manufacturing plants across the Midwest and the Gulf Coast region:

(a) Plant 1 — Akron, Ohio: CPS's flagship facility and corporate headquarters, with approximately 480 employees. Plant 1 produces the full range of CPS's product offerings, including HDPE drums, IBCs, and specialty containment vessels. This facility also houses the company's research and development center, quality assurance laboratory, and corporate administrative offices.

(b) Plant 2 — Evansville, Indiana: CPS's second-largest facility, with approximately 390 employees. Plant 2 primarily produces HDPE drums and steel pails and serves as a major distribution hub for CPS's Midwest customer base.

(c) Plant 3 — Baton Rouge, Louisiana: This facility, with approximately 310 employees, is strategically located to serve CPS's petrochemical customers along the Gulf Coast. Plant 3 produces IBCs, HDPE drums, and specialty containment vessels tailored to the petrochemical industry's stringent regulatory and performance requirements.

(d) Plant 4 — Ravenna, Ohio: CPS's smallest manufacturing facility, with approximately 240 employees. Plant 4 focuses primarily on steel pails and specialty packaging products for the agricultural sector, including pesticide containers and fertilizer packaging.

11. As of the Petition Date, CPS employed approximately 1,420 individuals across its four manufacturing facilities. CPS's workforce includes skilled manufacturing personnel, engineering staff, quality assurance technicians, sales and marketing professionals, and administrative support staff.

12. CPS Holdings Inc. is a Delaware corporation with its registered agent located at 1209 Orange Street, Wilmington, Delaware 19801, c/o National Corporate Services, Inc. CPS Holdings was formed in connection with the leveraged buyout of CPS by Thornfield Capital Partners LP ("Thornfield") in October 2017 and serves as the direct parent and intermediate holding company for CPS. CPS Holdings does not conduct any operations independent of CPS and holds no material assets other than its equity interest in CPS.

13. For the fiscal year ended December 31, 2021 ("FY2021"), CPS reported consolidated revenue of approximately $312.6 million and consolidated earnings before interest, taxes, depreciation, and amortization ("EBITDA") of approximately $38.4 million. CPS's revenue declined approximately 18% from FY2020 to FY2021, driven primarily by significant increases in resin costs (particularly high-density polyethylene resin), supply chain disruptions that constrained production capacity and delayed deliveries, and the loss of certain customer contracts resulting from the company's inability to pass through cost increases on a timely basis. For the twelve-month period ending March 31, 2022 ("TTM Q1 2022"), CPS's EBITDA further declined to approximately $29.1 million, reflecting continued margin compression attributable to persistent resin cost inflation and softening demand in certain end markets.

B. Prepetition Capital Structure

14. As of the Petition Date, the Debtors' prepetition capital structure consisted of the following funded debt obligations, totaling approximately $247.3 million:

15. First Lien Credit Agreement. On October 13, 2017, in connection with Thornfield's leveraged buyout of CPS, CPS entered into a First Lien Credit Agreement (as amended, restated, supplemented, or otherwise modified from time to time, the "First Lien Credit Agreement") with Ridgeline National Bank, N.A. ("Ridgeline"), as administrative agent and collateral agent, and the lenders party thereto (the "First Lien Lenders"). The First Lien Credit Agreement provided for:

(a) A $40.0 million senior secured revolving credit facility (the "Revolver"), bearing interest at a rate of the Secured Overnight Financing Rate ("SOFR") plus 375 basis points, maturing on October 13, 2022. As of the Petition Date, $32.6 million was drawn on the Revolver, with the remaining $7.4 million of availability subject to certain borrowing base limitations and covenant restrictions; and

(b) A $175.0 million senior secured first lien term loan (the "First Lien Term Loan"), bearing interest at a rate of SOFR plus 425 basis points, maturing on October 13, 2024. As of the Petition Date, $158.7 million in aggregate principal amount remained outstanding on the First Lien Term Loan, reflecting scheduled amortization payments made since the closing date.

16. The obligations under the First Lien Credit Agreement are secured by a first-priority lien on substantially all of the assets of CPS and CPS Holdings, including inventory, accounts receivable, equipment, real property, intellectual property, and equity interests, subject to certain customary exceptions (collectively, the "First Lien Collateral"). CPS Holdings is a guarantor of all obligations under the First Lien Credit Agreement. Total first lien secured debt as of the Petition Date was approximately $191.3 million ($32.6 million Revolver + $158.7 million First Lien Term Loan).

17. Second Lien Notes. Also on October 13, 2017, CPS issued $60.0 million in aggregate original principal amount of 9.75% Senior Secured Second Lien Notes due 2025 (the "Second Lien Notes"; CUSIP 22761TAA3) pursuant to an Indenture dated as of October 13, 2017 (as amended, supplemented, or otherwise modified from time to time, the "Second Lien Notes Indenture"), between CPS, CPS Holdings (as guarantor), and Continental Fiduciary Trust Company, as indenture trustee (the "Indenture Trustee"). As of the Petition Date, $56.0 million in aggregate principal amount of Second Lien Notes remained outstanding, reflecting $4.0 million in open-market repurchases conducted by CPS during the third quarter of 2019. Including approximately $3.9 million of accrued and unpaid interest (including interest at the default rate following the cross-default described below), total second lien secured claims as of the Petition Date were approximately $59.9 million.

18. The Second Lien Notes are secured by a second-priority lien on the same collateral package as the First Lien Credit Agreement, pursuant to an Intercreditor Agreement dated October 13, 2017, between Ridgeline (as first lien agent) and the Indenture Trustee (as second lien representative).

19. Total Funded Debt. As of the Petition Date, the Debtors' total funded debt was approximately $247.3 million, consisting of $32.6 million drawn on the Revolver, $158.7 million outstanding on the First Lien Term Loan, and $56.0 million outstanding on the Second Lien Notes (excluding accrued interest).

C. Events Leading to the Chapter 11 Filing

20. The Debtors' financial difficulties, driven by the macroeconomic and industry-specific headwinds described above, culminated in a breach of the financial covenants contained in the First Lien Credit Agreement. Section 7.11 of the First Lien Credit Agreement requires CPS to maintain a maximum Total Net Debt to EBITDA leverage ratio not to exceed 5.75x, tested quarterly at the end of each fiscal quarter.

21. For the quarter ended March 31, 2022 (Q1 2022), CPS's actual leverage ratio, calculated in accordance with the definitions set forth in the First Lien Credit Agreement, was approximately 8.50x ($247.3 million Total Net Debt ÷ $29.1 million TTM EBITDA). This represented a breach of approximately 2.75 turns, or 47.8%, above the maximum permitted leverage ratio of 5.75x. The covenant breach was attributable to the combined effect of the decline in EBITDA (from $38.4 million in FY2021 to $29.1 million on a trailing twelve-month basis as of Q1 2022) and the relatively stable level of funded debt, which CPS had been unable to reduce through operating cash flow or asset sales given the constrained operating environment.

22. On April 22, 2022, Ridgeline National Bank, N.A., as administrative agent under the First Lien Credit Agreement, delivered a Notice of Default (the "Notice of Default") to CPS, formally declaring an event of default under Section 8.01 of the First Lien Credit Agreement arising from CPS's failure to comply with the maximum leverage ratio covenant. The Notice of Default reserved all rights and remedies of the First Lien Lenders under the First Lien Credit Agreement and applicable law, including the right to accelerate the maturity of all outstanding obligations and to exercise remedies against the collateral.

23. The delivery of the Notice of Default also triggered a cross-default under Section 6.01(e) of the Second Lien Notes Indenture, which provides that any event of default under the First Lien Credit Agreement (or the acceleration of any indebtedness thereunder) constitutes an event of default under the Second Lien Notes Indenture. The Indenture Trustee did not independently deliver a notice of acceleration with respect to the Second Lien Notes during the period prior to the Petition Date.

24. Following the delivery of the Notice of Default, the Debtors and Ridgeline, together with consenting First Lien Lenders holding approximately 68% in aggregate principal amount of the First Lien Term Loan, entered into a Forbearance Agreement dated May 18, 2022 (the "Forbearance Agreement"). Under the Forbearance Agreement, the consenting First Lien Lenders agreed to forbear from exercising their rights and remedies arising from the Q1 2022 leverage covenant breach for a period of 45 days, through and including July 2, 2022, subject to certain milestones, conditions, and termination events. The forbearance period was subsequently extended once, to July 15, 2022, by amendment dated June 30, 2022.

25. During the forbearance period, the Debtors, with the assistance of their financial advisor, Aldersgate Advisory Group LLC ("Aldersgate") (lead managing director, Priya Narayanan), and their legal counsel, Calderwood & Harkness LLP, engaged in extensive, good-faith, arm's-length negotiations with two organized creditor groups: (a) the Ad Hoc Group of First Lien Lenders (represented by Hargrove, Mitchell & Saunders LLP, lead partner Victoria Kline), consisting of holders of approximately 68% in aggregate principal amount of the First Lien Term Loan, including Blackmoor Capital Management LLC, Greystone Fixed Income Partners LP, and Wexford Opportunity Fund III LP; and (b) the Ad Hoc Group of Second Lien Noteholders (represented by Pemberton & Locke LLP, lead partner Raymond Delvecchio), consisting of holders of approximately 72% in aggregate principal amount of the Second Lien Notes, including Fenwick Structured Credit Fund II LP and Millhaven Capital Advisors LLC. These negotiations addressed the terms of a comprehensive balance-sheet restructuring, including the allocation of reorganized equity, the terms of exit financing, the treatment of general unsecured claims, and the governance structure of the reorganized Debtors.

D. The Restructuring Support Agreement

26. The arm's-length negotiations described above culminated in the execution of a Restructuring Support Agreement (the "RSA") on July 8, 2022, among CPS, CPS Holdings, Thornfield, the Ad Hoc Group of First Lien Lenders, and the Ad Hoc Group of Second Lien Noteholders. The RSA memorializes the parties' agreement on the terms of the Plan and establishes a timetable and milestones for the Chapter 11 cases.

27. The RSA required the achievement of the following milestones:

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

(b) Disclosure Statement Approval: Within 45 days of the Petition Date (i.e., no later than August 4, 2022);

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

28. As noted, the Petition Date (June 20, 2022) preceded the formal execution of the RSA (July 8, 2022). The prepetition solicitation of votes on the Plan was conducted based on a substantially final term sheet setting forth the material terms of the restructuring, which was appended to the RSA, together with the Disclosure Statement that was circulated to holders of claims in the impaired voting classes. The key economic terms of the Plan — including the allocation of reorganized equity between first lien and second lien creditors, the terms of the new first lien take-back term loan, and the establishment of the general unsecured claims cash pool — were finalized and reflected in the Disclosure Statement prior to the commencement of the prepetition solicitation.

E. Summary of Plan Treatment

29. The Plan provides for the following treatment of claims and interests:

Class 1 — Other Priority Claims (Unimpaired; Deemed to Accept)

30. Holders of allowed other priority claims (including administrative expense claims to the extent classified and priority tax claims) shall be paid in full in cash on the effective date of the Plan or as soon thereafter as is reasonably practicable. Class 1 is unimpaired under the Plan and, accordingly, holders of Class 1 claims are conclusively deemed to have accepted the Plan pursuant to Section 1126(f) of the Bankruptcy Code and are not entitled to vote. Estimated recovery: 100%.

Class 2 — First Lien Secured Claims (Impaired; Entitled to Vote)

31. Holders of allowed first lien secured claims — consisting of $158.7 million outstanding on the First Lien Term Loan and $32.6 million drawn on the Revolver, for a total of approximately $191.3 million — shall receive, on a pro rata basis: (a) 92% of the equity interests in the reorganized Debtors (the "Reorganized Equity"), subject to dilution by the Management Incentive Plan (described below); and (b) their pro rata share of a $12.5 million new first lien take-back term loan (the "New First Lien Term Loan") to be issued by the reorganized Debtors on the effective date of the Plan. Class 2 is impaired under the Plan and is entitled to vote to accept or reject the Plan. Estimated recovery: approximately 72% (mid-low scenario), based on the midpoint reorganized enterprise value of $195.0 million.

Class 3 — Second Lien Secured Claims (Impaired; Entitled to Vote)

32. Holders of allowed second lien secured claims — consisting of $56.0 million in principal amount of Second Lien Notes and approximately $3.9 million in accrued and unpaid interest (including interest at the default rate), for a total of approximately $59.9 million — shall receive, on a pro rata basis: (a) 8% of the Reorganized Equity, subject to dilution by the Management Incentive Plan; and (b) warrants to acquire an additional 5% of the Reorganized Equity at a strike price equal to the plan equity value, subject to dilution by the Management Incentive Plan (the "Warrants"). Class 3 is impaired under the Plan and is entitled to vote to accept or reject the Plan. Estimated recovery: approximately 12%.

Class 4 — General Unsecured Claims (Impaired; Entitled to Vote)

33. Holders of allowed general unsecured claims — estimated at approximately $14.8 million in the aggregate, consisting primarily of trade payables, lease rejection claims, and other unsecured obligations — shall receive their pro rata share of a $1.5 million cash pool (the "GUC Cash Pool") to be funded on the effective date of the Plan. Class 4 is impaired under the Plan and is entitled to vote to accept or reject the Plan. Estimated recovery: approximately 10.1%.

Class 5 — Intercompany Claims (Unimpaired or Impaired; Not Voting)

34. Intercompany claims between and among the Debtors shall be reinstated, set off, or cancelled, in each case at the Debtors' discretion, in accordance with the Plan. Class 5 is either unimpaired (and deemed to accept) or impaired (and deemed to reject, as applicable), and holders of intercompany claims are not entitled to vote on the Plan.

Class 6 — Existing Equity Interests (Impaired; Deemed to Reject)

35. All existing equity interests in CPS Holdings — held by Thornfield Capital Partners LP — shall be cancelled and extinguished on the effective date of the Plan, and holders of existing equity interests shall receive no distribution under the Plan. Class 6 is impaired under the Plan and, because holders of existing equity interests will receive no distribution, Class 6 is deemed to have rejected the Plan pursuant to Section 1126(g) of the Bankruptcy Code and is not entitled to vote.

IV. THE PREPETITION SOLICITATION

A. Solicitation Materials Transmitted

36. In advance of the Petition Date, the Debtors, through Pinnacle Claims Administration LLC ("Pinnacle"), located at 1010 Dale Street North, St. Paul, MN 55117, transmitted the following solicitation materials (collectively, the "Solicitation Package") to all known holders of claims in Classes 2, 3, and 4 of the Plan — the three impaired classes entitled to vote:

(a) The Disclosure Statement (subsequently filed as Dkt. 48), including all exhibits and schedules thereto. The exhibits and schedules to the Disclosure Statement included: (i) a liquidation analysis; (ii) a valuation analysis of the reorganized Debtors prepared by Aldersgate Advisory Group LLC; (iii) audited financial statements for FY2019, FY2020, and FY2021; (iv) unaudited financial statements for Q1 2022; and (v) five-year financial projections for FY2022 through FY2026 prepared by the Debtors' management with the assistance of Aldersgate;

(b) The Plan of Reorganization (subsequently filed as Dkt. 47), including all exhibits thereto;

(c) The appropriate form of ballot for each voting class (the "Class 2 Ballot," the "Class 3 Ballot," and the "Class 4 Ballot," as applicable), each of which was specifically tailored to the applicable class and included pre-printed information identifying the holder, the amount of the holder's claim, and the class to which the claim belongs;

(d) A prepaid return envelope addressed to Pinnacle Claims Administration LLC at the address set forth above for the return of completed ballots;

(e) A cover letter from the Debtors' counsel, Calderwood & Harkness LLP, describing the solicitation process, the purpose of the ballots, instructions for voting, and the applicable voting deadline; and

(f) A copy of the RSA term sheet setting forth the material economic terms of the restructuring, together with a notice regarding the execution of the RSA and the Debtors' anticipated filing of their Chapter 11 petitions.

37. Distribution of the Solicitation Package was commenced prior to the Petition Date and was completed to all known holders of claims in the voting classes in advance of the Petition Date. As described in greater detail below, the Debtors ensured that all holders of claims in the voting classes received the Solicitation Package with adequate time to review the materials and cast their votes prior to the Voting Deadline.

B. Identification of Voting Classes and Record Date

38. As set forth above, three classes of claims are impaired under the Plan and are entitled to vote: Class 2 (First Lien Secured Claims), Class 3 (Second Lien Secured Claims), and Class 4 (General Unsecured Claims). Holders of unimpaired claims (Class 1) are deemed to accept the Plan and do not vote. Holders of equity interests whose interests are cancelled without any distribution (Class 6) are deemed to reject the Plan and do not vote.

39. The record date for determining the holders of claims entitled to vote on the Plan was established as June 15, 2022 (the "Voting Record Date"). Only holders of claims as of the Voting Record Date are entitled to vote on the Plan.

40. Holders of Class 2 claims (First Lien Secured Claims) were identified based on the records of Ridgeline National Bank, N.A., as administrative agent and collateral agent under the First Lien Credit Agreement. Ridgeline maintained a register of all First Lien Lenders and their respective participations in the Revolver and the First Lien Term Loan and provided such records to Pinnacle for purposes of the solicitation.

41. Holders of Class 3 claims (Second Lien Secured Claims) were identified based on the records of Continental Fiduciary Trust Company, as indenture trustee under the Second Lien Notes Indenture. The Indenture Trustee maintained a register of the beneficial holders of the Second Lien Notes and provided such records to Pinnacle for purposes of the solicitation. To the extent any Second Lien Notes were held in street name through The Depository Trust Company ("DTC") or its nominees, Pinnacle coordinated with the applicable DTC participants and their nominees to ensure that beneficial holders received the Solicitation Package and were afforded the opportunity to vote.

42. Holders of Class 4 claims (General Unsecured Claims) were identified from the Debtors' books and records, including accounts payable ledgers, contract files, and lease records. The Class 4 creditor population consists primarily of trade creditors, landlords under unexpired leases, and other general unsecured claimants. Pinnacle cross-referenced the Debtors' accounts payable records with outstanding invoices and known disputes to develop a comprehensive list of holders of general unsecured claims.

C. Timing of Solicitation

43. The Solicitation Packages were transmitted to holders of claims in each voting class on the following dates:

(a) Class 2 (First Lien Secured Claims): Solicitation Packages were transmitted to all identified holders of First Lien Secured Claims beginning on or about June 8, 2022;

(b) Class 3 (Second Lien Secured Claims): Solicitation Packages were transmitted to all identified holders of Second Lien Secured Claims beginning on or about June 8, 2022; and

(c) Class 4 (General Unsecured Claims): Solicitation Packages were transmitted to all identified holders of General Unsecured Claims beginning on or about June 10, 2022.

44. In all cases, more than 28 days elapsed (and will have elapsed) between the date of transmittal of the Solicitation Package and the proposed Voting Deadline of August 3, 2022, which satisfies the minimum notice periods applicable under Bankruptcy Rule 2002(b) and the customary solicitation periods observed in prepackaged Chapter 11 cases in this and other jurisdictions. The Debtors submit that the voting period afforded to all holders of claims in the voting classes was more than sufficient to permit a thorough review of the Solicitation Package and an informed decision regarding whether to accept or reject the Plan.

D. Compliance with Applicable Non-Bankruptcy Law — Section 1126(b)

45. Section 1126(b)(1) of the Bankruptcy Code provides:

"A holder of a claim or interest that has accepted or rejected the plan before the commencement of the case under this title is deemed to have accepted or rejected such plan, as the case may be, if—

(1) the solicitation of such acceptance or rejection was in compliance with any applicable nonbankruptcy law, rule, or regulation governing the adequacy of disclosure in connection with such solicitation…"

46. The prepetition solicitation conducted by the Debtors fully complied with applicable non-bankruptcy law governing the adequacy of disclosure.

47. Securities Act Compliance. Certain of the consideration to be distributed under the Plan constitutes "securities" within the meaning of Section 2(a)(1) of the Securities Act. Specifically, the Reorganized Equity to be distributed to holders of Class 2 and Class 3 claims, the Warrants to be distributed to holders of Class 3 claims, and the New First Lien Term Loan interests to be distributed to holders of Class 2 claims each constitute securities for purposes of the Securities Act.

48. The offer and sale of these securities in connection with the prepetition solicitation were conducted in reliance upon the exemption from the registration requirements of the Securities Act provided by Section 4(a)(2) thereof and Rule 506 of Regulation D promulgated thereunder. The solicitation was directed exclusively to holders of claims that qualify as "accredited investors" within the meaning of Rule 501(a) of Regulation D, and the number of non-accredited investors (if any) did not exceed the limits prescribed under Regulation D. Each holder of a Class 2 or Class 3 claim that received a Solicitation Package represented and warranted, on its ballot, that it is an accredited investor within the meaning of Rule 501(a). The Disclosure Statement contained all information material to an investment decision, including detailed descriptions of the securities to be issued under the Plan, the financial condition of the Debtors, the projected financial performance of the reorganized Debtors, risk factors, and limitations on transfer of the securities. No general solicitation or general advertising was conducted in connection with the prepetition solicitation.

49. State Securities Law Compliance. The Disclosure Statement also satisfied the requirements of applicable state securities laws (commonly known as "blue sky" laws) in each state in which solicitation materials were transmitted to holders of claims in the voting classes. The Debtors relied on applicable exemptions from state securities registration requirements, including exemptions for offers and sales to institutional investors and accredited investors.

50. Section 18 of the Securities Act. The Disclosure Statement was prepared in good faith and complied with Section 18 of the Securities Act, which provides a federal standard of liability for misleading statements in connection with the solicitation of votes on a plan of reorganization. The Disclosure Statement did not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein not misleading in light of the circumstances under which they were made.

51. Alternative Compliance Under § 1126(b)(2). In the alternative, and as an independent basis for approval of the prepetition solicitation, the Debtors submit that the prepetition solicitation complied with Section 1126(b)(2) of the Bankruptcy Code, which provides that a prepetition acceptance or rejection may be deemed valid if:

"there is not any holder of a claim or interest that was not afforded the disclosure required by section 1125 of this title."

52. As described in detail in Section V below, the Disclosure Statement contained "adequate information" within the meaning of Section 1125(a)(1) of the Bankruptcy Code. Every holder of a claim in the voting classes received the full Solicitation Package, including the Disclosure Statement, in advance of the Voting Deadline. No holder of a claim in any voting class was denied the opportunity to review the Disclosure Statement or to cast a vote on the Plan. Accordingly, the prepetition solicitation satisfied both prongs of Section 1126(b).

V. THE DISCLOSURE STATEMENT CONTAINS ADEQUATE INFORMATION

A. Standard Under § 1125(a)(1)

53. Section 1125(a)(1) of the Bankruptcy Code defines "adequate information" as:

"information of a kind, and in sufficient detail, as far as is reasonably practicable in light of the nature and history of the debtor and the condition of the debtor's books and records, including a discussion of the potential material Federal tax consequences of the plan to the debtor, any successor to the debtor, and a hypothetical investor typical of the holders of claims or interests in the case, that would enable such a hypothetical investor of the relevant class to make an informed judgment about the plan…"

54. Courts have consistently held that the determination of whether a disclosure statement contains adequate information is to be made on a case-by-case basis, considering the totality of the circumstances. See, e.g., In re Scioto Valley Mortg. Co., 88 B.R. 168, 170 (Bankr. S.D. Ohio 1988); In re Cardinal Congregate I, 121 B.R. 760, 765 (Bankr. S.D. Ohio 1990). As the Sixth Circuit Bankruptcy Appellate Panel has observed, the standard is one of reasonableness and practicability — a disclosure statement need not contain all potentially relevant information, but must contain information sufficient to allow a hypothetical investor typical of the relevant class to make an informed voting decision. See In re Oneida Ltd., 351 B.R. 79, 85–86 (Bankr. S.D.N.Y. 2006) (discussing similar standard); see also 7 Collier on Bankruptcy ¶ 1125.02 (16th ed. 2022). The court is afforded broad discretion in making this determination.

B. Content of the Disclosure Statement

55. The Disclosure Statement (Dkt. 48) addresses all material topics and contains all categories of information necessary for holders of claims in the voting classes to make an informed judgment about whether to accept or reject the Plan. Without limitation, the Disclosure Statement contains the following information:

56. Description of the Debtors' Business and Operations. The Disclosure Statement contains a comprehensive overview of CPS's manufacturing operations, including a description of its product lines (HDPE drums, IBCs, steel pails, and specialty containment vessels), its four manufacturing plants (Akron, OH; Evansville, IN; Baton Rouge, LA; and Ravenna, OH), its approximately 1,420 employees, and its customer base in the chemical, petrochemical, and agricultural sectors. The Disclosure Statement also describes CPS Holdings' role as the intermediate holding company for CPS and its formation in connection with the 2017 leveraged buyout.

57. Historical and Projected Financial Information. The Disclosure Statement contains detailed historical financial information, including FY2021 consolidated revenue of $312.6 million, FY2021 consolidated EBITDA of $38.4 million, and TTM Q1 2022 EBITDA of $29.1 million, as well as a discussion of the approximately 18% revenue decline from FY2020 to FY2021 and the factors contributing to that decline. The Disclosure Statement also contains five-year financial projections prepared by CPS management with the assistance of Aldersgate, projecting a recovery in EBITDA to approximately $36.5 million in FY2023 as resin costs normalize and the reorganized Debtors implement operational improvements. The projections extend through FY2026 and provide a basis for the valuation analysis described below.

58. Prepetition Capital Structure and Events Leading to Filing. The Disclosure Statement contains a thorough description of the Debtors' prepetition capital structure, including the leveraged buyout by Thornfield in October 2017 (at an enterprise value of approximately $410.0 million, with a Thornfield equity contribution of approximately $163.0 million), the First Lien Credit Agreement dated October 13, 2017 (providing for a $40.0 million revolver and a $175.0 million first lien term loan), the Second Lien Notes Indenture dated October 13, 2017 (providing for $60.0 million of 9.75% senior secured second lien notes), and the Debtors' total funded debt of approximately $247.3 million as of the Petition Date. The Disclosure Statement also describes the events leading to the Chapter 11 filing, including the leverage ratio breach (8.50x vs. 5.75x maximum), the Notice of Default dated April 22, 2022, and the Forbearance Agreement dated May 18, 2022.

59. Description of the RSA and Negotiations. The Disclosure Statement describes the arm's-length negotiations conducted among the Debtors, Thornfield, the Ad Hoc Group of First Lien Lenders, and the Ad Hoc Group of Second Lien Noteholders, and summarizes the key terms of the RSA executed on July 8, 2022.

60. Summary of the Plan. The Disclosure Statement contains a detailed summary of the Plan, including the classification and treatment of all six classes of claims and interests. The summary describes: Class 1 (Other Priority Claims — paid in full in cash, unimpaired); Class 2 (First Lien Secured Claims — 92% reorganized equity plus $12.5 million new first lien take-back term loan, impaired, estimated recovery ~72%); Class 3 (Second Lien Secured Claims — 8% reorganized equity plus warrants for 5% of reorganized equity, impaired, estimated recovery ~12%); Class 4 (General Unsecured Claims — pro rata share of $1.5 million cash pool, impaired, estimated recovery ~10.1%); Class 5 (Intercompany Claims — reinstated or cancelled at Debtors' discretion); and Class 6 (Existing Equity Interests — cancelled, no distribution).

61. Valuation Analysis. The Disclosure Statement contains a detailed valuation analysis of the reorganized Debtors prepared by Aldersgate Advisory Group LLC. The analysis employs a discounted cash flow ("DCF") methodology as the primary valuation approach and a comparable company analysis as a corroborative methodology. The valuation analysis yields a reorganized enterprise value at the midpoint of $195.0 million, within a range of $180.0 million to $210.0 million, implying a total enterprise value to EBITDA ("TEV/EBITDA") multiple of approximately 5.3x on projected FY2023 EBITDA of $36.5 million. After deducting the $12.5 million New First Lien Term Loan from the reorganized enterprise value, the implied reorganized equity value is approximately $182.5 million at the midpoint. The valuation analysis provides a basis for estimating the recoveries to be received by holders of claims in each class under the Plan.

62. Liquidation Analysis. The Disclosure Statement contains a detailed liquidation analysis estimating the recoveries that holders of claims in each class would receive in a hypothetical Chapter 7 liquidation of the Debtors' estates. The liquidation analysis estimates a total Chapter 7 liquidation value in the range of $96.2 million to $112.5 million. Based on the estimated liquidation value, the analysis projects the following recoveries in a Chapter 7 scenario: First Lien Secured Claims — midpoint recovery of approximately $104.4 million, or approximately 54.6% of the approximately $191.3 million in first lien secured claims; Second Lien Secured Claims — zero recovery; General Unsecured Claims — zero recovery. The liquidation analysis demonstrates that the Plan provides materially higher recoveries to all impaired classes of claims than would be available in a Chapter 7 liquidation, thereby satisfying the "best interests of creditors" test under Section 1129(a)(7) of the Bankruptcy Code.

63. DIP Financing. The Disclosure Statement describes the Debtors' debtor-in-possession financing, consisting of a $30.0 million superpriority revolving credit facility provided by Ridgeline National Bank, N.A., bearing interest at SOFR plus 500 basis points, with a commitment fee of $450,000 and a closing fee of $600,000. The DIP facility is intended to provide the Debtors with sufficient liquidity to fund their operations during the pendency of these Chapter 11 cases and to pay the costs of administration, including professional fees.

64. New First Lien Take-Back Term Loan. The Disclosure Statement describes the terms of the $12.5 million New First Lien Term Loan to be issued by the reorganized Debtors on the effective date of the Plan. The New First Lien Term Loan will bear interest at SOFR plus 550 basis points (with a 1.00% SOFR floor), have a five-year maturity (August 31, 2028), and amortize at a rate of 1.00% per annum ($31,250 per quarter).

65. Management Incentive Plan. The Disclosure Statement describes the Management Incentive Plan (the "MIP") to be established on or after the effective date of the Plan, reserving 10% of the Reorganized Equity for issuance to management and key employees of the reorganized Debtors. The MIP will dilute all classes of Reorganized Equity holders pro rata. Fifty percent (50%) of the MIP awards will be subject to time-based vesting (three-year cliff vesting), and fifty percent (50%) will be subject to performance-based vesting (based on EBITDA targets to be established by the board of directors of the reorganized Debtors).

66. Executory Contracts and Unexpired Leases. The Disclosure Statement identifies the executory contracts and unexpired leases that the Debtors intend to assume under the Plan, including: (a) the resin supply agreement with Northstar Polymers Inc.; (b) the equipment lease with Meridian Industrial Leasing Corp. (monthly payment of $87,500); and (c) the warehouse lease with Benchmark Real Estate Holdings LLC (monthly rent of $42,000, with a cure amount of $126,000 representing three months of prepetition arrearages). The Disclosure Statement also includes a schedule of executory contracts and unexpired leases that the Debtors intend to reject under the Plan and describes the procedures for the assumption or rejection of contracts not specifically addressed in the Plan.

67. Risk Factors. The Disclosure Statement contains a comprehensive discussion of the risk factors associated with the Plan and the reorganized Debtors, including risks related to the reorganization process itself, the uncertainty inherent in financial projections, industry-specific risks (including volatility in resin prices, supply chain disruptions, and competitive pressures), risks associated with the reorganized Debtors' capital structure and leverage, regulatory risks, and the potential impact of general economic conditions on the reorganized Debtors' business and financial performance.

68. D&O Tail Insurance. The Disclosure Statement describes the directors' and officers' liability insurance "tail" policy to be obtained by the Debtors, with an aggregate coverage limit of $15.0 million, to be issued by Apex Indemnity Insurance Company at a tail premium of $1.2 million. The tail policy will provide coverage for claims arising from acts or omissions of the Debtors' directors and officers occurring prior to the effective date of the Plan.

69. Professional Fees. The Disclosure Statement provides a summary of estimated professional fees and expenses to be incurred in connection with these Chapter 11 cases, totaling approximately $9.3 million. The estimated professional fees include: Calderwood & Harkness LLP (counsel to the Debtors) — approximately $4.2 million; Aldersgate Advisory Group LLC (financial advisor to the Debtors) — approximately $4.025 million in the aggregate (inclusive of a restructuring fee payable upon emergence); Kellner & Hartwick LLP (local co-counsel to the Debtors) — approximately $380,000; Pinnacle Claims Administration LLC (claims and noticing agent) — approximately $285,000; and Dralvecen Reyes Linley CPAs LLP & Associates (independent auditor) — approximately $410,000.

70. Releases, Exculpation, and Injunction Provisions. The Disclosure Statement describes the release, exculpation, and injunction provisions contained in the Plan, including the scope of the releases to be granted by the Debtors and by third parties, the exculpation of released parties from liability for post-petition conduct in connection with the Chapter 11 cases, and the injunction to be issued upon confirmation of the Plan.

71. Tax Consequences. The Disclosure Statement contains a discussion of the potential material federal income tax consequences of the Plan to the Debtors, any successor to the Debtors, and a hypothetical investor typical of the holders of claims or interests in each class, as required by Section 1125(a)(1) of the Bankruptcy Code.

72. Voting Procedures and Deadline. The Disclosure Statement describes the procedures for voting on the Plan, including the identification of the impaired classes entitled to vote, the Voting Record Date, the forms of ballot, the Voting Deadline, and the address for the return of completed ballots to Pinnacle Claims Administration LLC.

73. In view of the foregoing, the Debtors respectfully submit that the Disclosure Statement contains all information of a kind, and in sufficient detail, as far as is reasonably practicable in light of the nature and history of the Debtors and the condition of the Debtors' books and records, that would enable a hypothetical investor typical of the relevant class to make an informed judgment about the Plan. The Disclosure Statement therefore satisfies the standard for "adequate information" set forth in Section 1125(a)(1) of the Bankruptcy Code.

VI. SOLICITATION AND TABULATION PROCEDURES

A. Voting Deadline

74. The Debtors propose that August 3, 2022 be established as the Voting Deadline by which all ballots must be received by the tabulation agent in order to be counted in the tabulation of votes on the Plan. The proposed Voting Deadline affords all holders of claims in the voting classes a period of at least 54 days from the date of initial transmittal of the Solicitation Packages (on or about June 8–10, 2022) to the Voting Deadline — well in excess of the minimum periods prescribed by Bankruptcy Rule 2002(b) and the customary solicitation periods in prepackaged Chapter 11 cases.

75. Ballots must be properly completed, executed, and delivered to Pinnacle Claims Administration LLC at the address specified on the ballot (1010 Dale Street North, St. Paul, MN 55117) or by such other means as may be set forth in the ballot instructions, including facsimile or electronic submission where specifically authorized.

B. Designation of Tabulation Agent

76. The Debtors request that the Court designate Pinnacle Claims Administration LLC, located at 1010 Dale Street North, St. Paul, MN 55117, as the tabulation agent for the Plan (the "Tabulation Agent"). Pinnacle was previously approved by this Court as the claims and noticing agent in these Chapter 11 cases and has maintained the claims register and served all court notices throughout these proceedings. Pinnacle has extensive experience serving as a tabulation agent in prepackaged, prearranged, and traditional Chapter 11 cases and is well-qualified to perform the tabulation functions described herein.

77. In its capacity as Tabulation Agent, Pinnacle will receive, date-stamp, and tabulate all ballots received from holders of claims in Classes 2, 3, and 4 of the Plan. Following the Voting Deadline, Pinnacle will prepare and file with this Court a declaration certifying the results of the tabulation (the "Tabulation Declaration"), setting forth for each voting class: (a) the number and dollar amount of allowed claims held by holders that voted to accept the Plan; (b) the number and dollar amount of allowed claims held by holders that voted to reject the Plan; (c) the percentage of acceptance and rejection in each class, both by number and by amount; and (d) any ballots that were not counted and the reasons therefor. The Tabulation Declaration will be filed in advance of the confirmation hearing, which is currently anticipated to be held on or about August 29, 2022.

C. Form of Ballots

78. The Debtors have prepared separate forms of ballot for each impaired voting class, as follows:

(a) Class 2 Ballot — for holders of First Lien Secured Claims (attached hereto as Exhibit A);

(b) Class 3 Ballot — for holders of Second Lien Secured Claims (attached hereto as Exhibit B); and

79. Each form of ballot has been specifically designed for the applicable class and includes the following information and features: (a) identification of the class to which the ballot relates and the treatment to be received by holders of claims in that class under the Plan; (b) clear, plain-language instructions for casting an acceptance or rejection of the Plan; (c) specification of the Voting Deadline and the address for return of completed ballots to Pinnacle; (d) a certification by the voting party that it is a holder of a claim in the applicable class as of the Voting Record Date and that it has the authority to vote the claim; and (e) for holders of Class 2 and Class 3 claims, an accredited investor certification as required in connection with the Securities Act exemptions relied upon by the Debtors. Copies of each form of ballot are attached to this Motion as Exhibits A, B, and C, respectively.

D. Ballot Tabulation Rules

80. The Debtors propose that the following rules govern the tabulation of ballots received in connection with the solicitation of votes on the Plan:

(a) Eligible Voters. Only ballots received from holders of claims in impaired classes entitled to vote on the Plan — Classes 2, 3, and 4 — shall be counted in the tabulation. Ballots received from holders of claims in unimpaired classes or from holders of interests whose interests are cancelled under the Plan shall not be counted.

(b) Unimpaired Classes Deemed to Accept. Holders of unimpaired claims in Class 1 are conclusively deemed to have accepted the Plan pursuant to Section 1126(f) of the Bankruptcy Code and are not entitled to vote.

(c) Impaired Classes Receiving No Distribution Deemed to Reject. Holders of existing equity interests in Class 6 are conclusively deemed to have rejected the Plan pursuant to Section 1126(g) of the Bankruptcy Code and are not entitled to vote.

(d) Late-Filed Ballots. Ballots received by the Tabulation Agent after the Voting Deadline of August 3, 2022 at 5:00 p.m. (Eastern Time) shall not be counted in the tabulation, unless the Debtors, in their discretion and with the consent of the Ad Hoc Group of First Lien Lenders and the Ad Hoc Group of Second Lien Noteholders, agree to accept such late-filed ballots, or unless otherwise ordered by this Court.

(e) Duplicate Ballots. If a holder of a claim in a voting class submits more than one ballot with respect to the same claim, only the last-timely-received ballot shall be counted, and all prior ballots with respect to such claim shall be deemed superseded and shall not be counted.

(f) Illegible or Incomplete Ballots. Any ballot that is illegible, contains insufficient information to identify the holder or the claim being voted, or is unsigned shall not be counted in the tabulation.

(g) Ambiguous Ballots. Any ballot that does not clearly indicate an acceptance or rejection of the Plan, or that indicates both an acceptance and a rejection of the Plan, shall not be counted in the tabulation.

(h) Non-Record Holders. Ballots submitted by entities that are not holders of record of claims as of the Voting Record Date (June 15, 2022) shall not be counted in the tabulation unless accompanied by satisfactory evidence of beneficial ownership of such claim as of the Voting Record Date, such as an account statement, a letter from a custodian or broker, or other documentation reasonably acceptable to the Tabulation Agent.

E. Acceptance Thresholds

81. Under Section 1126(c) of the Bankruptcy Code, a class of claims has accepted a plan if such plan has been accepted by creditors that hold at least two-thirds (2/3) in amount and more than one-half (1/2) in number of the allowed claims of such class that have actually voted on the plan. Each of Classes 2, 3, and 4 must satisfy both the amount test and the number test for acceptance. Claims that are not voted are not included in the denominator for purposes of calculating the acceptance percentage. As noted in Section I above, the Debtors anticipate that all three impaired voting classes will have voted to accept the Plan by the requisite statutory majorities, as will be confirmed by the Tabulation Declaration.

VII. LEGAL AUTHORITY

A. Section 1126(b) — Prepetition Solicitation

82. Section 1126(b) of the Bankruptcy Code expressly permits the solicitation of votes on a plan of reorganization prior to the commencement of a bankruptcy case, provided that the solicitation satisfies one of two alternative standards. Specifically, Section 1126(b) provides:

(2) if there is not any such applicable nonbankruptcy law, rule, or regulation, such acceptance or rejection was solicited after disclosure to such holder of adequate information, as defined in section 1125(a) of this title."

83. Section 1126(b) is the statutory mechanism that makes prepackaged plans of reorganization possible. By permitting prepetition solicitation, Section 1126(b) allows debtors to negotiate the terms of a plan of reorganization with their key creditor constituencies, solicit acceptances from impaired classes, and file for bankruptcy with a fully-supported plan in hand — thereby minimizing the duration and cost of the bankruptcy proceedings and the disruption to the debtor's business operations. See H.R. Rep. No. 95-595, at 411 (1978), reprinted in 1978 U.S.C.C.A.N. 5963, 6367; In re Zenith Elecs. Corp., 241 B.R. 92, 100 (Bankr. D. Del. 1999).

84. Courts in the Northern District of Ohio and throughout the Sixth Circuit have consistently approved prepetition solicitations in prepackaged Chapter 11 cases where the solicitation was conducted in compliance with the standards set forth in Section 1126(b). See, e.g., In re Dana Corp., No. 06-10354 (Bankr. S.D.N.Y. 2008) (approving prepetition solicitation in prepackaged case involving industrial manufacturer); In re Aleris Int'l, Inc., No. 10-10078 (Bankr. D. Del. 2010) (same). Courts have broad discretion in evaluating the adequacy of prepetition solicitation materials and have generally approved such materials where they contain information sufficient to enable a hypothetical investor to make an informed voting decision. See In re NII Holdings, Inc., 536 B.R. 61, 73 (Bankr. S.D.N.Y. 2015); In re Global Aviation Holdings, Inc., No. 12-40783 (Bankr. E.D.N.Y. 2012).

85. As described in detail in Section IV.D above, the Debtors conducted the prepetition solicitation in compliance with both prongs of Section 1126(b). With respect to Section 1126(b)(1), the solicitation complied with applicable non-bankruptcy securities law, including Section 4(a)(2) of the Securities Act and Regulation D promulgated thereunder, as the distribution of securities under the Plan was conducted in reliance upon the private placement exemption from registration and was directed exclusively to accredited investors. With respect to Section 1126(b)(2), the Disclosure Statement transmitted to all holders of claims in the voting classes contained "adequate information" within the meaning of Section 1125(a)(1) of the Bankruptcy Code, as described in detail in Section V above. The Debtors' compliance with both prongs of Section 1126(b) provides this Court with a sound and independent basis for approving the prepetition solicitation.

B. Section 1125 — Adequate Information

86. As a general matter, Section 1125(b) of the Bankruptcy Code provides that a plan proponent may not solicit acceptances or rejections of a plan of reorganization until after the court has approved a disclosure statement containing adequate information. However, Section 1126(b) creates a well-recognized exception to this general rule for prepetition solicitations. Where, as here, the solicitation of votes was conducted prior to the commencement of the bankruptcy case, the disclosure statement need not be approved by the court before solicitation; rather, the court may retroactively approve the disclosure statement as containing adequate information for purposes of confirming the plan. See In re Southland Corp., 124 B.R. 211, 227 (Bankr. N.D. Tex. 1991) (approving disclosure statement in prepackaged case retroactively); In re Station Casinos, Inc., No. 09-52477 (Bankr. D. Nev. 2011) (same); see also 7 Collier on Bankruptcy ¶ 1126.03[2] (16th ed. 2022) ("Where solicitation of votes occurs prepetition, the court may retroactively review the disclosure statement and approve it as containing adequate information.").

87. The Debtors respectfully request that this Court retroactively approve the Disclosure Statement (Dkt. 48) as containing adequate information within the meaning of Section 1125(a)(1) of the Bankruptcy Code for purposes of confirming the Plan. As described in detail in Section V above, the Disclosure Statement contains comprehensive information regarding every material aspect of the Debtors' businesses, their financial condition, the terms of the Plan, and the risks associated with the reorganization — including a description of the Debtors' business and operations, historical and projected financial information, a detailed description of the Debtors' prepetition capital structure and the events leading to the Chapter 11 filing, a summary of the RSA and the arm's-length negotiations that produced it, a detailed summary of the Plan and the treatment of each class of claims and interests, a valuation analysis, a liquidation analysis, a description of the DIP financin

UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF OHIO EASTERN DIVISION
DEBTORS' MOTION FOR AN ORDER (I) APPROVING THE ADEQUACY OF THE PREPETITION SOLICITATION OF VOTES ON THE PREPACKAGED PLAN OF REORGANIZATION PURSUANT TO 11 U.S.C. § 1126(b) AND (II) ESTABLISHING SOLICITATION AND TABULATION PROCEDURES
Related Documents: Plan of Reorganization (Dkt. 47); Disclosure Statement (Dkt. 48)
The above-captioned debtors and debtors in possession (collectively, the "Debtors"), by and through their undersigned counsel, Calderwood & Harkness LLP and Kellner & Hartwick LLP, hereby move this Court (the "Motion") for entry of an order, substantially in the form attached hereto as Exhibit D (the "Proposed Order"), (i) approving the adequacy of the prepetition solicitation of votes on the Debtors' Prepackaged Plan of Reorganization (Dkt. 47) (the "Plan") as having been conducted in compliance with 11 U.S.C. § 1126(b) and applicable non-bankruptcy law, (ii) approving the Disclosure Statement (Dkt. 48) (the "Disclosure Statement") as containing "adequate information" within the meaning of 11 U.S.C. § 1125(a)(1), (iii) establishing solicitation and tabulation procedures as described herein, (iv) establishing August 3, 2022 as the voting deadline, and (v) designating Pinnacle Claims Administration LLC as the tabulation agent. In support of this Motion, the Debtors respectfully state as follows:
I. PRELIMINARY STATEMENT
1. On June 20, 2022 (the "Petition Date"), Crestline Packaging Solutions LLC ("Crestline" or "CPS"), an Ohio limited liability company, and CPS Holdings Inc. ("CPS Holdings"), a Delaware corporation (collectively, the "Debtors"), each filed a voluntary petition for relief under Chapter 11 of Title 11 of the United States Code, 11 U.S.C. §§ 101–1532 (the "Bankruptcy Code"), in the United States Bankruptcy Court for the Northern District of Ohio, Eastern Division (the "Court"). The Debtors continue to operate their businesses and manage their properties as debtors in possession pursuant to Sections 1107(a) and 1108 of the Bankruptcy Code.
2. Simultaneously with the filing of their Chapter 11 petitions, the Debtors filed the Plan and the Disclosure Statement with this Court. The Plan embodies the comprehensive restructuring of the Debtors' balance sheet, which was the product of months of intensive, arm's-length negotiations among the Debtors, their secured creditor constituencies, and their equity sponsor, Thornfield Capital Partners LP ("Thornfield"). The Plan is supported by holders of a supermajority of the Debtors' first lien secured debt and second lien secured notes, as well as by Thornfield.
3. Prior to the Petition Date, in accordance with the customary practice in prepackaged Chapter 11 cases, the Debtors conducted a prepetition solicitation of votes on the Plan from holders of claims in Classes 2, 3, and 4 of the Plan — the three impaired classes of claims entitled to vote on the Plan under Section 1126 of the Bankruptcy Code. The prepetition solicitation was conducted in strict compliance with applicable non-bankruptcy law, including Sections 4(a)(2) and 18 of the Securities Act of 1933, as amended (the "Securities Act"), and Regulation D promulgated thereunder, as well as the requirements of 11 U.S.C. § 1126(b). As described in greater detail below, the Disclosure Statement transmitted to holders of claims in the voting classes contained all information material and necessary for an informed voting decision, including a comprehensive description of the Debtors' business and assets, a detailed summary of the Plan's treatment of each class of claims and interests, a valuation analysis prepared by the Debtors' financial advisor, a liquidation analysis, financial projections, and a thorough discussion of risk factors associated with the Plan and the reorganized Debtors.
4. By this Motion, the Debtors seek entry of an order:
(a) approving the prepetition solicitation as having been conducted in compliance with 11 U.S.C. § 1126(b) and applicable non-bankruptcy law, including Sections 4(a)(2) and 18 of the Securities Act and Regulation D thereunder;
(b) approving the Disclosure Statement as having contained "adequate information" within the meaning of 11 U.S.C. § 1125(a)(1);
(c) establishing the solicitation and tabulation procedures described herein;
(d) setting August 3, 2022 as the voting deadline (the "Voting Deadline") for receipt of all ballots;
(e) designating Pinnacle Claims Administration LLC ("Pinnacle") as the tabulation agent for the Plan; and
(f) approving the forms of ballot attached hereto as Exhibits A, B, and C.
5. As will be confirmed by the Tabulation Declaration of Pinnacle to be filed with this Court promptly following the Voting Deadline, all three impaired voting classes — Class 2 (First Lien Secured Claims), Class 3 (Second Lien Secured Claims), and Class 4 (General Unsecured Claims) — have voted to accept the Plan by the requisite statutory majorities set forth in Section 1126(c) of the Bankruptcy Code (i.e., acceptance by holders of at least two-thirds in amount and more than one-half in number of the allowed claims of each class that have voted on the Plan). Accordingly, the Debtors anticipate proceeding promptly to confirmation of the Plan at a confirmation hearing currently expected to be scheduled for August 29, 2022.
II. JURISDICTION AND VENUE
6. This Court has jurisdiction over this Motion pursuant to 28 U.S.C. §§ 157 and 1334 and the General Order of Reference entered by the United States District Court for the Northern District of Ohio. This is a core proceeding under 28 U.S.C. § 157(b)(2)(A) (matters concerning the administration of the estate) and 28 U.S.C. § 157(b)(2)(L) (confirmations of plans). The Debtors confirm that they consent to the entry of a final order by this Court to the extent that it is later determined that this Court, absent consent of the parties, cannot enter final orders or judgments consistent with Article III of the United States Constitution.
7. Venue is proper in this district pursuant to 28 U.S.C. §§ 1408 and 1409. Crestline Packaging Solutions LLC is an Ohio limited liability company with its principal place of business and headquarters located at 4710 Industrial Corridor Drive, Akron, OH 44308, which is within the Northern District of Ohio, Eastern Division. CPS Holdings Inc. is a Delaware corporation that, as the direct parent of CPS, has its principal office in Ohio.
8. The statutory predicates for the relief sought herein are 11 U.S.C. §§ 105(a), 1125, 1126(b), and 1128, and Rules 2002(b), 3017, and 3018 of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules").
III. BACKGROUND
A. General Background and Business Overview
9. Crestline Packaging Solutions LLC is an Ohio limited liability company headquartered at 4710 Industrial Corridor Drive, Akron, OH 44308. Founded in 1987, CPS is a leading manufacturer of rigid industrial packaging solutions, including high-density polyethylene ("HDPE") drums, intermediate bulk containers ("IBCs"), steel pails, and specialty containment vessels. CPS's products are sold to customers in the chemical, petrochemical, and agricultural sectors throughout the United States and, to a limited extent, Canada and Mexico.
10. CPS operates four manufacturing plants across the Midwest and the Gulf Coast region:
(a) Plant 1 — Akron, Ohio: CPS's flagship facility and corporate headquarters, with approximately 480 employees. Plant 1 produces the full range of CPS's product offerings, including HDPE drums, IBCs, and specialty containment vessels. This facility also houses the company's research and development center, quality assurance laboratory, and corporate administrative offices.
(b) Plant 2 — Evansville, Indiana: CPS's second-largest facility, with approximately 390 employees. Plant 2 primarily produces HDPE drums and steel pails and serves as a major distribution hub for CPS's Midwest customer base.
(c) Plant 3 — Baton Rouge, Louisiana: This facility, with approximately 310 employees, is strategically located to serve CPS's petrochemical customers along the Gulf Coast. Plant 3 produces IBCs, HDPE drums, and specialty containment vessels tailored to the petrochemical industry's stringent regulatory and performance requirements.
(d) Plant 4 — Ravenna, Ohio: CPS's smallest manufacturing facility, with approximately 240 employees. Plant 4 focuses primarily on steel pails and specialty packaging products for the agricultural sector, including pesticide containers and fertilizer packaging.
11. As of the Petition Date, CPS employed approximately 1,420 individuals across its four manufacturing facilities. CPS's workforce includes skilled manufacturing personnel, engineering staff, quality assurance technicians, sales and marketing professionals, and administrative support staff.
12. CPS Holdings Inc. is a Delaware corporation with its registered agent located at 1209 Orange Street, Wilmington, Delaware 19801, c/o National Corporate Services, Inc. CPS Holdings was formed in connection with the leveraged buyout of CPS by Thornfield Capital Partners LP ("Thornfield") in October 2017 and serves as the direct parent and intermediate holding company for CPS. CPS Holdings does not conduct any operations independent of CPS and holds no material assets other than its equity interest in CPS.
13. For the fiscal year ended December 31, 2021 ("FY2021"), CPS reported consolidated revenue of approximately $312.6 million and consolidated earnings before interest, taxes, depreciation, and amortization ("EBITDA") of approximately $38.4 million. CPS's revenue declined approximately 18% from FY2020 to FY2021, driven primarily by significant increases in resin costs (particularly high-density polyethylene resin), supply chain disruptions that constrained production capacity and delayed deliveries, and the loss of certain customer contracts resulting from the company's inability to pass through cost increases on a timely basis. For the twelve-month period ending March 31, 2022 ("TTM Q1 2022"), CPS's EBITDA further declined to approximately $29.1 million, reflecting continued margin compression attributable to persistent resin cost inflation and softening demand in certain end markets.
B. Prepetition Capital Structure
14. As of the Petition Date, the Debtors' prepetition capital structure consisted of the following funded debt obligations, totaling approximately $247.3 million:
15. First Lien Credit Agreement. On October 13, 2017, in connection with Thornfield's leveraged buyout of CPS, CPS entered into a First Lien Credit Agreement (as amended, restated, supplemented, or otherwise modified from time to time, the "First Lien Credit Agreement") with Ridgeline National Bank, N.A. ("Ridgeline"), as administrative agent and collateral agent, and the lenders party thereto (the "First Lien Lenders"). The First Lien Credit Agreement provided for:
(a) A $40.0 million senior secured revolving credit facility (the "Revolver"), bearing interest at a rate of the Secured Overnight Financing Rate ("SOFR") plus 375 basis points, maturing on October 13, 2022. As of the Petition Date, $32.6 million was drawn on the Revolver, with the remaining $7.4 million of availability subject to certain borrowing base limitations and covenant restrictions; and
(b) A $175.0 million senior secured first lien term loan (the "First Lien Term Loan"), bearing interest at a rate of SOFR plus 425 basis points, maturing on October 13, 2024. As of the Petition Date, $158.7 million in aggregate principal amount remained outstanding on the First Lien Term Loan, reflecting scheduled amortization payments made since the closing date.
16. The obligations under the First Lien Credit Agreement are secured by a first-priority lien on substantially all of the assets of CPS and CPS Holdings, including inventory, accounts receivable, equipment, real property, intellectual property, and equity interests, subject to certain customary exceptions (collectively, the "First Lien Collateral"). CPS Holdings is a guarantor of all obligations under the First Lien Credit Agreement. Total first lien secured debt as of the Petition Date was approximately $191.3 million ($32.6 million Revolver + $158.7 million First Lien Term Loan).
17. Second Lien Notes. Also on October 13, 2017, CPS issued $60.0 million in aggregate original principal amount of 9.75% Senior Secured Second Lien Notes due 2025 (the "Second Lien Notes"; CUSIP 22761TAA3) pursuant to an Indenture dated as of October 13, 2017 (as amended, supplemented, or otherwise modified from time to time, the "Second Lien Notes Indenture"), between CPS, CPS Holdings (as guarantor), and Continental Fiduciary Trust Company, as indenture trustee (the "Indenture Trustee"). As of the Petition Date, $56.0 million in aggregate principal amount of Second Lien Notes remained outstanding, reflecting $4.0 million in open-market repurchases conducted by CPS during the third quarter of 2019. Including approximately $3.9 million of accrued and unpaid interest (including interest at the default rate following the cross-default described below), total second lien secured claims as of the Petition Date were approximately $59.9 million.
18. The Second Lien Notes are secured by a second-priority lien on the same collateral package as the First Lien Credit Agreement, pursuant to an Intercreditor Agreement dated October 13, 2017, between Ridgeline (as first lien agent) and the Indenture Trustee (as second lien representative).
19. Total Funded Debt. As of the Petition Date, the Debtors' total funded debt was approximately $247.3 million, consisting of $32.6 million drawn on the Revolver, $158.7 million outstanding on the First Lien Term Loan, and $56.0 million outstanding on the Second Lien Notes (excluding accrued interest).
C. Events Leading to the Chapter 11 Filing
20. The Debtors' financial difficulties, driven by the macroeconomic and industry-specific headwinds described above, culminated in a breach of the financial covenants contained in the First Lien Credit Agreement. Section 7.11 of the First Lien Credit Agreement requires CPS to maintain a maximum Total Net Debt to EBITDA leverage ratio not to exceed 5.75x, tested quarterly at the end of each fiscal quarter.
21. For the quarter ended March 31, 2022 (Q1 2022), CPS's actual leverage ratio, calculated in accordance with the definitions set forth in the First Lien Credit Agreement, was approximately 8.50x ($247.3 million Total Net Debt ÷ $29.1 million TTM EBITDA). This represented a breach of approximately 2.75 turns, or 47.8%, above the maximum permitted leverage ratio of 5.75x. The covenant breach was attributable to the combined effect of the decline in EBITDA (from $38.4 million in FY2021 to $29.1 million on a trailing twelve-month basis as of Q1 2022) and the relatively stable level of funded debt, which CPS had been unable to reduce through operating cash flow or asset sales given the constrained operating environment.
22. On April 22, 2022, Ridgeline National Bank, N.A., as administrative agent under the First Lien Credit Agreement, delivered a Notice of Default (the "Notice of Default") to CPS, formally declaring an event of default under Section 8.01 of the First Lien Credit Agreement arising from CPS's failure to comply with the maximum leverage ratio covenant. The Notice of Default reserved all rights and remedies of the First Lien Lenders under the First Lien Credit Agreement and applicable law, including the right to accelerate the maturity of all outstanding obligations and to exercise remedies against the collateral.
23. The delivery of the Notice of Default also triggered a cross-default under Section 6.01(e) of the Second Lien Notes Indenture, which provides that any event of default under the First Lien Credit Agreement (or the acceleration of any indebtedness thereunder) constitutes an event of default under the Second Lien Notes Indenture. The Indenture Trustee did not independently deliver a notice of acceleration with respect to the Second Lien Notes during the period prior to the Petition Date.
24. Following the delivery of the Notice of Default, the Debtors and Ridgeline, together with consenting First Lien Lenders holding approximately 68% in aggregate principal amount of the First Lien Term Loan, entered into a Forbearance Agreement dated May 18, 2022 (the "Forbearance Agreement"). Under the Forbearance Agreement, the consenting First Lien Lenders agreed to forbear from exercising their rights and remedies arising from the Q1 2022 leverage covenant breach for a period of 45 days, through and including July 2, 2022, subject to certain milestones, conditions, and termination events. The forbearance period was subsequently extended once, to July 15, 2022, by amendment dated June 30, 2022.
25. During the forbearance period, the Debtors, with the assistance of their financial advisor, Aldersgate Advisory Group LLC ("Aldersgate") (lead managing director, Priya Narayanan), and their legal counsel, Calderwood & Harkness LLP, engaged in extensive, good-faith, arm's-length negotiations with two organized creditor groups: (a) the Ad Hoc Group of First Lien Lenders (represented by Hargrove, Mitchell & Saunders LLP, lead partner Victoria Kline), consisting of holders of approximately 68% in aggregate principal amount of the First Lien Term Loan, including Blackmoor Capital Management LLC, Greystone Fixed Income Partners LP, and Wexford Opportunity Fund III LP; and (b) the Ad Hoc Group of Second Lien Noteholders (represented by Pemberton & Locke LLP, lead partner Raymond Delvecchio), consisting of holders of approximately 72% in aggregate principal amount of the Second Lien Notes, including Fenwick Structured Credit Fund II LP and Millhaven Capital Advisors LLC. These negotiations addressed the terms of a comprehensive balance-sheet restructuring, including the allocation of reorganized equity, the terms of exit financing, the treatment of general unsecured claims, and the governance structure of the reorganized Debtors.
D. The Restructuring Support Agreement
26. The arm's-length negotiations described above culminated in the execution of a Restructuring Support Agreement (the "RSA") on July 8, 2022, among CPS, CPS Holdings, Thornfield, the Ad Hoc Group of First Lien Lenders, and the Ad Hoc Group of Second Lien Noteholders. The RSA memorializes the parties' agreement on the terms of the Plan and establishes a timetable and milestones for the Chapter 11 cases.
27. The RSA required the achievement of the following milestones:
(a) Petition Date: No later than July 31, 2022 (actual Petition Date: June 20, 2022);
(b) Disclosure Statement Approval: Within 45 days of the Petition Date (i.e., no later than August 4, 2022);
(c) Plan Confirmation: Within 90 days of the Petition Date (i.e., no later than September 18, 2022); and
(d) Effective Date: Within 15 business days following the entry of the Confirmation Order.
28. As noted, the Petition Date (June 20, 2022) preceded the formal execution of the RSA (July 8, 2022). The prepetition solicitation of votes on the Plan was conducted based on a substantially final term sheet setting forth the material terms of the restructuring, which was appended to the RSA, together with the Disclosure Statement that was circulated to holders of claims in the impaired voting classes. The key economic terms of the Plan — including the allocation of reorganized equity between first lien and second lien creditors, the terms of the new first lien take-back term loan, and the establishment of the general unsecured claims cash pool — were finalized and reflected in the Disclosure Statement prior to the commencement of the prepetition solicitation.
E. Summary of Plan Treatment
29. The Plan provides for the following treatment of claims and interests:
Class 1 — Other Priority Claims (Unimpaired; Deemed to Accept)
30. Holders of allowed other priority claims (including administrative expense claims to the extent classified and priority tax claims) shall be paid in full in cash on the effective date of the Plan or as soon thereafter as is reasonably practicable. Class 1 is unimpaired under the Plan and, accordingly, holders of Class 1 claims are conclusively deemed to have accepted the Plan pursuant to Section 1126(f) of the Bankruptcy Code and are not entitled to vote. Estimated recovery: 100%.
Class 2 — First Lien Secured Claims (Impaired; Entitled to Vote)
31. Holders of allowed first lien secured claims — consisting of $158.7 million outstanding on the First Lien Term Loan and $32.6 million drawn on the Revolver, for a total of approximately $191.3 million — shall receive, on a pro rata basis: (a) 92% of the equity interests in the reorganized Debtors (the "Reorganized Equity"), subject to dilution by the Management Incentive Plan (described below); and (b) their pro rata share of a $12.5 million new first lien take-back term loan (the "New First Lien Term Loan") to be issued by the reorganized Debtors on the effective date of the Plan. Class 2 is impaired under the Plan and is entitled to vote to accept or reject the Plan. Estimated recovery: approximately 72% (mid-low scenario), based on the midpoint reorganized enterprise value of $195.0 million.
Class 3 — Second Lien Secured Claims (Impaired; Entitled to Vote)
32. Holders of allowed second lien secured claims — consisting of $56.0 million in principal amount of Second Lien Notes and approximately $3.9 million in accrued and unpaid interest (including interest at the default rate), for a total of approximately $59.9 million — shall receive, on a pro rata basis: (a) 8% of the Reorganized Equity, subject to dilution by the Management Incentive Plan; and (b) warrants to acquire an additional 5% of the Reorganized Equity at a strike price equal to the plan equity value, subject to dilution by the Management Incentive Plan (the "Warrants"). Class 3 is impaired under the Plan and is entitled to vote to accept or reject the Plan. Estimated recovery: approximately 12%.
Class 4 — General Unsecured Claims (Impaired; Entitled to Vote)
33. Holders of allowed general unsecured claims — estimated at approximately $14.8 million in the aggregate, consisting primarily of trade payables, lease rejection claims, and other unsecured obligations — shall receive their pro rata share of a $1.5 million cash pool (the "GUC Cash Pool") to be funded on the effective date of the Plan. Class 4 is impaired under the Plan and is entitled to vote to accept or reject the Plan. Estimated recovery: approximately 10.1%.
Class 5 — Intercompany Claims (Unimpaired or Impaired; Not Voting)
34. Intercompany claims between and among the Debtors shall be reinstated, set off, or cancelled, in each case at the Debtors' discretion, in accordance with the Plan. Class 5 is either unimpaired (and deemed to accept) or impaired (and deemed to reject, as applicable), and holders of intercompany claims are not entitled to vote on the Plan.
Class 6 — Existing Equity Interests (Impaired; Deemed to Reject)
35. All existing equity interests in CPS Holdings — held by Thornfield Capital Partners LP — shall be cancelled and extinguished on the effective date of the Plan, and holders of existing equity interests shall receive no distribution under the Plan. Class 6 is impaired under the Plan and, because holders of existing equity interests will receive no distribution, Class 6 is deemed to have rejected the Plan pursuant to Section 1126(g) of the Bankruptcy Code and is not entitled to vote.
IV. THE PREPETITION SOLICITATION
A. Solicitation Materials Transmitted
36. In advance of the Petition Date, the Debtors, through Pinnacle Claims Administration LLC ("Pinnacle"), located at 1010 Dale Street North, St. Paul, MN 55117, transmitted the following solicitation materials (collectively, the "Solicitation Package") to all known holders of claims in Classes 2, 3, and 4 of the Plan — the three impaired classes entitled to vote:
(a) The Disclosure Statement (subsequently filed as Dkt. 48), including all exhibits and schedules thereto. The exhibits and schedules to the Disclosure Statement included: (i) a liquidation analysis; (ii) a valuation analysis of the reorganized Debtors prepared by Aldersgate Advisory Group LLC; (iii) audited financial statements for FY2019, FY2020, and FY2021; (iv) unaudited financial statements for Q1 2022; and (v) five-year financial projections for FY2022 through FY2026 prepared by the Debtors' management with the assistance of Aldersgate;
(b) The Plan of Reorganization (subsequently filed as Dkt. 47), including all exhibits thereto;
(c) The appropriate form of ballot for each voting class (the "Class 2 Ballot," the "Class 3 Ballot," and the "Class 4 Ballot," as applicable), each of which was specifically tailored to the applicable class and included pre-printed information identifying the holder, the amount of the holder's claim, and the class to which the claim belongs;
(d) A prepaid return envelope addressed to Pinnacle Claims Administration LLC at the address set forth above for the return of completed ballots;
(e) A cover letter from the Debtors' counsel, Calderwood & Harkness LLP, describing the solicitation process, the purpose of the ballots, instructions for voting, and the applicable voting deadline; and
(f) A copy of the RSA term sheet setting forth the material economic terms of the restructuring, together with a notice regarding the execution of the RSA and the Debtors' anticipated filing of their Chapter 11 petitions.
37. Distribution of the Solicitation Package was commenced prior to the Petition Date and was completed to all known holders of claims in the voting classes in advance of the Petition Date. As described in greater detail below, the Debtors ensured that all holders of claims in the voting classes received the Solicitation Package with adequate time to review the materials and cast their votes prior to the Voting Deadline.
B. Identification of Voting Classes and Record Date
38. As set forth above, three classes of claims are impaired under the Plan and are entitled to vote: Class 2 (First Lien Secured Claims), Class 3 (Second Lien Secured Claims), and Class 4 (General Unsecured Claims). Holders of unimpaired claims (Class 1) are deemed to accept the Plan and do not vote. Holders of equity interests whose interests are cancelled without any distribution (Class 6) are deemed to reject the Plan and do not vote.
39. The record date for determining the holders of claims entitled to vote on the Plan was established as June 15, 2022 (the "Voting Record Date"). Only holders of claims as of the Voting Record Date are entitled to vote on the Plan.
40. Holders of Class 2 claims (First Lien Secured Claims) were identified based on the records of Ridgeline National Bank, N.A., as administrative agent and collateral agent under the First Lien Credit Agreement. Ridgeline maintained a register of all First Lien Lenders and their respective participations in the Revolver and the First Lien Term Loan and provided such records to Pinnacle for purposes of the solicitation.
41. Holders of Class 3 claims (Second Lien Secured Claims) were identified based on the records of Continental Fiduciary Trust Company, as indenture trustee under the Second Lien Notes Indenture. The Indenture Trustee maintained a register of the beneficial holders of the Second Lien Notes and provided such records to Pinnacle for purposes of the solicitation. To the extent any Second Lien Notes were held in street name through The Depository Trust Company ("DTC") or its nominees, Pinnacle coordinated with the applicable DTC participants and their nominees to ensure that beneficial holders received the Solicitation Package and were afforded the opportunity to vote.
42. Holders of Class 4 claims (General Unsecured Claims) were identified from the Debtors' books and records, including accounts payable ledgers, contract files, and lease records. The Class 4 creditor population consists primarily of trade creditors, landlords under unexpired leases, and other general unsecured claimants. Pinnacle cross-referenced the Debtors' accounts payable records with outstanding invoices and known disputes to develop a comprehensive list of holders of general unsecured claims.
C. Timing of Solicitation
43. The Solicitation Packages were transmitted to holders of claims in each voting class on the following dates:
(a) Class 2 (First Lien Secured Claims): Solicitation Packages were transmitted to all identified holders of First Lien Secured Claims beginning on or about June 8, 2022;
(b) Class 3 (Second Lien Secured Claims): Solicitation Packages were transmitted to all identified holders of Second Lien Secured Claims beginning on or about June 8, 2022; and
(c) Class 4 (General Unsecured Claims): Solicitation Packages were transmitted to all identified holders of General Unsecured Claims beginning on or about June 10, 2022.
44. In all cases, more than 28 days elapsed (and will have elapsed) between the date of transmittal of the Solicitation Package and the proposed Voting Deadline of August 3, 2022, which satisfies the minimum notice periods applicable under Bankruptcy Rule 2002(b) and the customary solicitation periods observed in prepackaged Chapter 11 cases in this and other jurisdictions. The Debtors submit that the voting period afforded to all holders of claims in the voting classes was more than sufficient to permit a thorough review of the Solicitation Package and an informed decision regarding whether to accept or reject the Plan.
D. Compliance with Applicable Non-Bankruptcy Law — Section 1126(b)
45. Section 1126(b)(1) of the Bankruptcy Code provides:
"A holder of a claim or interest that has accepted or rejected the plan before the commencement of the case under this title is deemed to have accepted or rejected such plan, as the case may be, if—
(1) the solicitation of such acceptance or rejection was in compliance with any applicable nonbankruptcy law, rule, or regulation governing the adequacy of disclosure in connection with such solicitation…"
46. The prepetition solicitation conducted by the Debtors fully complied with applicable non-bankruptcy law governing the adequacy of disclosure.
47. Securities Act Compliance. Certain of the consideration to be distributed under the Plan constitutes "securities" within the meaning of Section 2(a)(1) of the Securities Act. Specifically, the Reorganized Equity to be distributed to holders of Class 2 and Class 3 claims, the Warrants to be distributed to holders of Class 3 claims, and the New First Lien Term Loan interests to be distributed to holders of Class 2 claims each constitute securities for purposes of the Securities Act.
48. The offer and sale of these securities in connection with the prepetition solicitation were conducted in reliance upon the exemption from the registration requirements of the Securities Act provided by Section 4(a)(2) thereof and Rule 506 of Regulation D promulgated thereunder. The solicitation was directed exclusively to holders of claims that qualify as "accredited investors" within the meaning of Rule 501(a) of Regulation D, and the number of non-accredited investors (if any) did not exceed the limits prescribed under Regulation D. Each holder of a Class 2 or Class 3 claim that received a Solicitation Package represented and warranted, on its ballot, that it is an accredited investor within the meaning of Rule 501(a). The Disclosure Statement contained all information material to an investment decision, including detailed descriptions of the securities to be issued under the Plan, the financial condition of the Debtors, the projected financial performance of the reorganized Debtors, risk factors, and limitations on transfer of the securities. No general solicitation or general advertising was conducted in connection with the prepetition solicitation.
49. State Securities Law Compliance. The Disclosure Statement also satisfied the requirements of applicable state securities laws (commonly known as "blue sky" laws) in each state in which solicitation materials were transmitted to holders of claims in the voting classes. The Debtors relied on applicable exemptions from state securities registration requirements, including exemptions for offers and sales to institutional investors and accredited investors.
50. Section 18 of the Securities Act. The Disclosure Statement was prepared in good faith and complied with Section 18 of the Securities Act, which provides a federal standard of liability for misleading statements in connection with the solicitation of votes on a plan of reorganization. The Disclosure Statement did not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein not misleading in light of the circumstances under which they were made.
51. Alternative Compliance Under § 1126(b)(2). In the alternative, and as an independent basis for approval of the prepetition solicitation, the Debtors submit that the prepetition solicitation complied with Section 1126(b)(2) of the Bankruptcy Code, which provides that a prepetition acceptance or rejection may be deemed valid if:
"there is not any holder of a claim or interest that was not afforded the disclosure required by section 1125 of this title."
52. As described in detail in Section V below, the Disclosure Statement contained "adequate information" within the meaning of Section 1125(a)(1) of the Bankruptcy Code. Every holder of a claim in the voting classes received the full Solicitation Package, including the Disclosure Statement, in advance of the Voting Deadline. No holder of a claim in any voting class was denied the opportunity to review the Disclosure Statement or to cast a vote on the Plan. Accordingly, the prepetition solicitation satisfied both prongs of Section 1126(b).
V. THE DISCLOSURE STATEMENT CONTAINS ADEQUATE INFORMATION
A. Standard Under § 1125(a)(1)
53. Section 1125(a)(1) of the Bankruptcy Code defines "adequate information" as:
"information of a kind, and in sufficient detail, as far as is reasonably practicable in light of the nature and history of the debtor and the condition of the debtor's books and records, including a discussion of the potential material Federal tax consequences of the plan to the debtor, any successor to the debtor, and a hypothetical investor typical of the holders of claims or interests in the case, that would enable such a hypothetical investor of the relevant class to make an informed judgment about the plan…"
54. Courts have consistently held that the determination of whether a disclosure statement contains adequate information is to be made on a case-by-case basis, considering the totality of the circumstances. See, e.g., In re Scioto Valley Mortg. Co., 88 B.R. 168, 170 (Bankr. S.D. Ohio 1988); In re Cardinal Congregate I, 121 B.R. 760, 765 (Bankr. S.D. Ohio 1990). As the Sixth Circuit Bankruptcy Appellate Panel has observed, the standard is one of reasonableness and practicability — a disclosure statement need not contain all potentially relevant information, but must contain information sufficient to allow a hypothetical investor typical of the relevant class to make an informed voting decision. See In re Oneida Ltd., 351 B.R. 79, 85–86 (Bankr. S.D.N.Y. 2006) (discussing similar standard); see also 7 Collier on Bankruptcy ¶ 1125.02 (16th ed. 2022). The court is afforded broad discretion in making this determination.
B. Content of the Disclosure Statement
55. The Disclosure Statement (Dkt. 48) addresses all material topics and contains all categories of information necessary for holders of claims in the voting classes to make an informed judgment about whether to accept or reject the Plan. Without limitation, the Disclosure Statement contains the following information:
56. Description of the Debtors' Business and Operations. The Disclosure Statement contains a comprehensive overview of CPS's manufacturing operations, including a description of its product lines (HDPE drums, IBCs, steel pails, and specialty containment vessels), its four manufacturing plants (Akron, OH; Evansville, IN; Baton Rouge, LA; and Ravenna, OH), its approximately 1,420 employees, and its customer base in the chemical, petrochemical, and agricultural sectors. The Disclosure Statement also describes CPS Holdings' role as the intermediate holding company for CPS and its formation in connection with the 2017 leveraged buyout.
57. Historical and Projected Financial Information. The Disclosure Statement contains detailed historical financial information, including FY2021 consolidated revenue of $312.6 million, FY2021 consolidated EBITDA of $38.4 million, and TTM Q1 2022 EBITDA of $29.1 million, as well as a discussion of the approximately 18% revenue decline from FY2020 to FY2021 and the factors contributing to that decline. The Disclosure Statement also contains five-year financial projections prepared by CPS management with the assistance of Aldersgate, projecting a recovery in EBITDA to approximately $36.5 million in FY2023 as resin costs normalize and the reorganized Debtors implement operational improvements. The projections extend through FY2026 and provide a basis for the valuation analysis described below.
58. Prepetition Capital Structure and Events Leading to Filing. The Disclosure Statement contains a thorough description of the Debtors' prepetition capital structure, including the leveraged buyout by Thornfield in October 2017 (at an enterprise value of approximately $410.0 million, with a Thornfield equity contribution of approximately $163.0 million), the First Lien Credit Agreement dated October 13, 2017 (providing for a $40.0 million revolver and a $175.0 million first lien term loan), the Second Lien Notes Indenture dated October 13, 2017 (providing for $60.0 million of 9.75% senior secured second lien notes), and the Debtors' total funded debt of approximately $247.3 million as of the Petition Date. The Disclosure Statement also describes the events leading to the Chapter 11 filing, including the leverage ratio breach (8.50x vs. 5.75x maximum), the Notice of Default dated April 22, 2022, and the Forbearance Agreement dated May 18, 2022.
59. Description of the RSA and Negotiations. The Disclosure Statement describes the arm's-length negotiations conducted among the Debtors, Thornfield, the Ad Hoc Group of First Lien Lenders, and the Ad Hoc Group of Second Lien Noteholders, and summarizes the key terms of the RSA executed on July 8, 2022.
60. Summary of the Plan. The Disclosure Statement contains a detailed summary of the Plan, including the classification and treatment of all six classes of claims and interests. The summary describes: Class 1 (Other Priority Claims — paid in full in cash, unimpaired); Class 2 (First Lien Secured Claims — 92% reorganized equity plus $12.5 million new first lien take-back term loan, impaired, estimated recovery ~72%); Class 3 (Second Lien Secured Claims — 8% reorganized equity plus warrants for 5% of reorganized equity, impaired, estimated recovery ~12%); Class 4 (General Unsecured Claims — pro rata share of $1.5 million cash pool, impaired, estimated recovery ~10.1%); Class 5 (Intercompany Claims — reinstated or cancelled at Debtors' discretion); and Class 6 (Existing Equity Interests — cancelled, no distribution).
61. Valuation Analysis. The Disclosure Statement contains a detailed valuation analysis of the reorganized Debtors prepared by Aldersgate Advisory Group LLC. The analysis employs a discounted cash flow ("DCF") methodology as the primary valuation approach and a comparable company analysis as a corroborative methodology. The valuation analysis yields a reorganized enterprise value at the midpoint of $195.0 million, within a range of $180.0 million to $210.0 million, implying a total enterprise value to EBITDA ("TEV/EBITDA") multiple of approximately 5.3x on projected FY2023 EBITDA of $36.5 million. After deducting the $12.5 million New First Lien Term Loan from the reorganized enterprise value, the implied reorganized equity value is approximately $182.5 million at the midpoint. The valuation analysis provides a basis for estimating the recoveries to be received by holders of claims in each class under the Plan.
62. Liquidation Analysis. The Disclosure Statement contains a detailed liquidation analysis estimating the recoveries that holders of claims in each class would receive in a hypothetical Chapter 7 liquidation of the Debtors' estates. The liquidation analysis estimates a total Chapter 7 liquidation value in the range of $96.2 million to $112.5 million. Based on the estimated liquidation value, the analysis projects the following recoveries in a Chapter 7 scenario: First Lien Secured Claims — midpoint recovery of approximately $104.4 million, or approximately 54.6% of the approximately $191.3 million in first lien secured claims; Second Lien Secured Claims — zero recovery; General Unsecured Claims — zero recovery. The liquidation analysis demonstrates that the Plan provides materially higher recoveries to all impaired classes of claims than would be available in a Chapter 7 liquidation, thereby satisfying the "best interests of creditors" test under Section 1129(a)(7) of the Bankruptcy Code.
63. DIP Financing. The Disclosure Statement describes the Debtors' debtor-in-possession financing, consisting of a $30.0 million superpriority revolving credit facility provided by Ridgeline National Bank, N.A., bearing interest at SOFR plus 500 basis points, with a commitment fee of $450,000 and a closing fee of $600,000. The DIP facility is intended to provide the Debtors with sufficient liquidity to fund their operations during the pendency of these Chapter 11 cases and to pay the costs of administration, including professional fees.
64. New First Lien Take-Back Term Loan. The Disclosure Statement describes the terms of the $12.5 million New First Lien Term Loan to be issued by the reorganized Debtors on the effective date of the Plan. The New First Lien Term Loan will bear interest at SOFR plus 550 basis points (with a 1.00% SOFR floor), have a five-year maturity (August 31, 2028), and amortize at a rate of 1.00% per annum ($31,250 per quarter).
65. Management Incentive Plan. The Disclosure Statement describes the Management Incentive Plan (the "MIP") to be established on or after the effective date of the Plan, reserving 10% of the Reorganized Equity for issuance to management and key employees of the reorganized Debtors. The MIP will dilute all classes of Reorganized Equity holders pro rata. Fifty percent (50%) of the MIP awards will be subject to time-based vesting (three-year cliff vesting), and fifty percent (50%) will be subject to performance-based vesting (based on EBITDA targets to be established by the board of directors of the reorganized Debtors).
66. Executory Contracts and Unexpired Leases. The Disclosure Statement identifies the executory contracts and unexpired leases that the Debtors intend to assume under the Plan, including: (a) the resin supply agreement with Northstar Polymers Inc.; (b) the equipment lease with Meridian Industrial Leasing Corp. (monthly payment of $87,500); and (c) the warehouse lease with Benchmark Real Estate Holdings LLC (monthly rent of $42,000, with a cure amount of $126,000 representing three months of prepetition arrearages). The Disclosure Statement also includes a schedule of executory contracts and unexpired leases that the Debtors intend to reject under the Plan and describes the procedures for the assumption or rejection of contracts not specifically addressed in the Plan.
67. Risk Factors. The Disclosure Statement contains a comprehensive discussion of the risk factors associated with the Plan and the reorganized Debtors, including risks related to the reorganization process itself, the uncertainty inherent in financial projections, industry-specific risks (including volatility in resin prices, supply chain disruptions, and competitive pressures), risks associated with the reorganized Debtors' capital structure and leverage, regulatory risks, and the potential impact of general economic conditions on the reorganized Debtors' business and financial performance.
68. D&O Tail Insurance. The Disclosure Statement describes the directors' and officers' liability insurance "tail" policy to be obtained by the Debtors, with an aggregate coverage limit of $15.0 million, to be issued by Apex Indemnity Insurance Company at a tail premium of $1.2 million. The tail policy will provide coverage for claims arising from acts or omissions of the Debtors' directors and officers occurring prior to the effective date of the Plan.
69. Professional Fees. The Disclosure Statement provides a summary of estimated professional fees and expenses to be incurred in connection with these Chapter 11 cases, totaling approximately $9.3 million. The estimated professional fees include: Calderwood & Harkness LLP (counsel to the Debtors) — approximately $4.2 million; Aldersgate Advisory Group LLC (financial advisor to the Debtors) — approximately $4.025 million in the aggregate (inclusive of a restructuring fee payable upon emergence); Kellner & Hartwick LLP (local co-counsel to the Debtors) — approximately $380,000; Pinnacle Claims Administration LLC (claims and noticing agent) — approximately $285,000; and Dralvecen Reyes Linley CPAs LLP & Associates (independent auditor) — approximately $410,000.
70. Releases, Exculpation, and Injunction Provisions. The Disclosure Statement describes the release, exculpation, and injunction provisions contained in the Plan, including the scope of the releases to be granted by the Debtors and by third parties, the exculpation of released parties from liability for post-petition conduct in connection with the Chapter 11 cases, and the injunction to be issued upon confirmation of the Plan.
71. Tax Consequences. The Disclosure Statement contains a discussion of the potential material federal income tax consequences of the Plan to the Debtors, any successor to the Debtors, and a hypothetical investor typical of the holders of claims or interests in each class, as required by Section 1125(a)(1) of the Bankruptcy Code.
72. Voting Procedures and Deadline. The Disclosure Statement describes the procedures for voting on the Plan, including the identification of the impaired classes entitled to vote, the Voting Record Date, the forms of ballot, the Voting Deadline, and the address for the return of completed ballots to Pinnacle Claims Administration LLC.
73. In view of the foregoing, the Debtors respectfully submit that the Disclosure Statement contains all information of a kind, and in sufficient detail, as far as is reasonably practicable in light of the nature and history of the Debtors and the condition of the Debtors' books and records, that would enable a hypothetical investor typical of the relevant class to make an informed judgment about the Plan. The Disclosure Statement therefore satisfies the standard for "adequate information" set forth in Section 1125(a)(1) of the Bankruptcy Code.
VI. SOLICITATION AND TABULATION PROCEDURES
A. Voting Deadline
74. The Debtors propose that August 3, 2022 be established as the Voting Deadline by which all ballots must be received by the tabulation agent in order to be counted in the tabulation of votes on the Plan. The proposed Voting Deadline affords all holders of claims in the voting classes a period of at least 54 days from the date of initial transmittal of the Solicitation Packages (on or about June 8–10, 2022) to the Voting Deadline — well in excess of the minimum periods prescribed by Bankruptcy Rule 2002(b) and the customary solicitation periods in prepackaged Chapter 11 cases.
75. Ballots must be properly completed, executed, and delivered to Pinnacle Claims Administration LLC at the address specified on the ballot (1010 Dale Street North, St. Paul, MN 55117) or by such other means as may be set forth in the ballot instructions, including facsimile or electronic submission where specifically authorized.
B. Designation of Tabulation Agent
76. The Debtors request that the Court designate Pinnacle Claims Administration LLC, located at 1010 Dale Street North, St. Paul, MN 55117, as the tabulation agent for the Plan (the "Tabulation Agent"). Pinnacle was previously approved by this Court as the claims and noticing agent in these Chapter 11 cases and has maintained the claims register and served all court notices throughout these proceedings. Pinnacle has extensive experience serving as a tabulation agent in prepackaged, prearranged, and traditional Chapter 11 cases and is well-qualified to perform the tabulation functions described herein.
77. In its capacity as Tabulation Agent, Pinnacle will receive, date-stamp, and tabulate all ballots received from holders of claims in Classes 2, 3, and 4 of the Plan. Following the Voting Deadline, Pinnacle will prepare and file with this Court a declaration certifying the results of the tabulation (the "Tabulation Declaration"), setting forth for each voting class: (a) the number and dollar amount of allowed claims held by holders that voted to accept the Plan; (b) the number and dollar amount of allowed claims held by holders that voted to reject the Plan; (c) the percentage of acceptance and rejection in each class, both by number and by amount; and (d) any ballots that were not counted and the reasons therefor. The Tabulation Declaration will be filed in advance of the confirmation hearing, which is currently anticipated to be held on or about August 29, 2022.
C. Form of Ballots
78. The Debtors have prepared separate forms of ballot for each impaired voting class, as follows:
(a) Class 2 Ballot — for holders of First Lien Secured Claims (attached hereto as Exhibit A);
(b) Class 3 Ballot — for holders of Second Lien Secured Claims (attached hereto as Exhibit B); and
(c) Class 4 Ballot — for holders of General Unsecured Claims (attached hereto as Exhibit C).
79. Each form of ballot has been specifically designed for the applicable class and includes the following information and features: (a) identification of the class to which the ballot relates and the treatment to be received by holders of claims in that class under the Plan; (b) clear, plain-language instructions for casting an acceptance or rejection of the Plan; (c) specification of the Voting Deadline and the address for return of completed ballots to Pinnacle; (d) a certification by the voting party that it is a holder of a claim in the applicable class as of the Voting Record Date and that it has the authority to vote the claim; and (e) for holders of Class 2 and Class 3 claims, an accredited investor certification as required in connection with the Securities Act exemptions relied upon by the Debtors. Copies of each form of ballot are attached to this Motion as Exhibits A, B, and C, respectively.
D. Ballot Tabulation Rules
80. The Debtors propose that the following rules govern the tabulation of ballots received in connection with the solicitation of votes on the Plan:
(a) Eligible Voters. Only ballots received from holders of claims in impaired classes entitled to vote on the Plan — Classes 2, 3, and 4 — shall be counted in the tabulation. Ballots received from holders of claims in unimpaired classes or from holders of interests whose interests are cancelled under the Plan shall not be counted.
(b) Unimpaired Classes Deemed to Accept. Holders of unimpaired claims in Class 1 are conclusively deemed to have accepted the Plan pursuant to Section 1126(f) of the Bankruptcy Code and are not entitled to vote.
(c) Impaired Classes Receiving No Distribution Deemed to Reject. Holders of existing equity interests in Class 6 are conclusively deemed to have rejected the Plan pursuant to Section 1126(g) of the Bankruptcy Code and are not entitled to vote.
(d) Late-Filed Ballots. Ballots received by the Tabulation Agent after the Voting Deadline of August 3, 2022 at 5:00 p.m. (Eastern Time) shall not be counted in the tabulation, unless the Debtors, in their discretion and with the consent of the Ad Hoc Group of First Lien Lenders and the Ad Hoc Group of Second Lien Noteholders, agree to accept such late-filed ballots, or unless otherwise ordered by this Court.
(e) Duplicate Ballots. If a holder of a claim in a voting class submits more than one ballot with respect to the same claim, only the last-timely-received ballot shall be counted, and all prior ballots with respect to such claim shall be deemed superseded and shall not be counted.
(f) Illegible or Incomplete Ballots. Any ballot that is illegible, contains insufficient information to identify the holder or the claim being voted, or is unsigned shall not be counted in the tabulation.
(g) Ambiguous Ballots. Any ballot that does not clearly indicate an acceptance or rejection of the Plan, or that indicates both an acceptance and a rejection of the Plan, shall not be counted in the tabulation.
(h) Non-Record Holders. Ballots submitted by entities that are not holders of record of claims as of the Voting Record Date (June 15, 2022) shall not be counted in the tabulation unless accompanied by satisfactory evidence of beneficial ownership of such claim as of the Voting Record Date, such as an account statement, a letter from a custodian or broker, or other documentation reasonably acceptable to the Tabulation Agent.
E. Acceptance Thresholds
81. Under Section 1126(c) of the Bankruptcy Code, a class of claims has accepted a plan if such plan has been accepted by creditors that hold at least two-thirds (2/3) in amount and more than one-half (1/2) in number of the allowed claims of such class that have actually voted on the plan. Each of Classes 2, 3, and 4 must satisfy both the amount test and the number test for acceptance. Claims that are not voted are not included in the denominator for purposes of calculating the acceptance percentage. As noted in Section I above, the Debtors anticipate that all three impaired voting classes will have voted to accept the Plan by the requisite statutory majorities, as will be confirmed by the Tabulation Declaration.
VII. LEGAL AUTHORITY
A. Section 1126(b) — Prepetition Solicitation
82. Section 1126(b) of the Bankruptcy Code expressly permits the solicitation of votes on a plan of reorganization prior to the commencement of a bankruptcy case, provided that the solicitation satisfies one of two alternative standards. Specifically, Section 1126(b) provides:
"A holder of a claim or interest that has accepted or rejected the plan before the commencement of the case under this title is deemed to have accepted or rejected such plan, as the case may be, if—
(1) the solicitation of such acceptance or rejection was in compliance with any applicable nonbankruptcy law, rule, or regulation governing the adequacy of disclosure in connection with such solicitation; or
(2) if there is not any such applicable nonbankruptcy law, rule, or regulation, such acceptance or rejection was solicited after disclosure to such holder of adequate information, as defined in section 1125(a) of this title."
83. Section 1126(b) is the statutory mechanism that makes prepackaged plans of reorganization possible. By permitting prepetition solicitation, Section 1126(b) allows debtors to negotiate the terms of a plan of reorganization with their key creditor constituencies, solicit acceptances from impaired classes, and file for bankruptcy with a fully-supported plan in hand — thereby minimizing the duration and cost of the bankruptcy proceedings and the disruption to the debtor's business operations. See H.R. Rep. No. 95-595, at 411 (1978), reprinted in 1978 U.S.C.C.A.N. 5963, 6367; In re Zenith Elecs. Corp., 241 B.R. 92, 100 (Bankr. D. Del. 1999).
84. Courts in the Northern District of Ohio and throughout the Sixth Circuit have consistently approved prepetition solicitations in prepackaged Chapter 11 cases where the solicitation was conducted in compliance with the standards set forth in Section 1126(b). See, e.g., In re Dana Corp., No. 06-10354 (Bankr. S.D.N.Y. 2008) (approving prepetition solicitation in prepackaged case involving industrial manufacturer); In re Aleris Int'l, Inc., No. 10-10078 (Bankr. D. Del. 2010) (same). Courts have broad discretion in evaluating the adequacy of prepetition solicitation materials and have generally approved such materials where they contain information sufficient to enable a hypothetical investor to make an informed voting decision. See In re NII Holdings, Inc., 536 B.R. 61, 73 (Bankr. S.D.N.Y. 2015); In re Global Aviation Holdings, Inc., No. 12-40783 (Bankr. E.D.N.Y. 2012).
85. As described in detail in Section IV.D above, the Debtors conducted the prepetition solicitation in compliance with both prongs of Section 1126(b). With respect to Section 1126(b)(1), the solicitation complied with applicable non-bankruptcy securities law, including Section 4(a)(2) of the Securities Act and Regulation D promulgated thereunder, as the distribution of securities under the Plan was conducted in reliance upon the private placement exemption from registration and was directed exclusively to accredited investors. With respect to Section 1126(b)(2), the Disclosure Statement transmitted to all holders of claims in the voting classes contained "adequate information" within the meaning of Section 1125(a)(1) of the Bankruptcy Code, as described in detail in Section V above. The Debtors' compliance with both prongs of Section 1126(b) provides this Court with a sound and independent basis for approving the prepetition solicitation.
B. Section 1125 — Adequate Information
86. As a general matter, Section 1125(b) of the Bankruptcy Code provides that a plan proponent may not solicit acceptances or rejections of a plan of reorganization until after the court has approved a disclosure statement containing adequate information. However, Section 1126(b) creates a well-recognized exception to this general rule for prepetition solicitations. Where, as here, the solicitation of votes was conducted prior to the commencement of the bankruptcy case, the disclosure statement need not be approved by the court before solicitation; rather, the court may retroactively approve the disclosure statement as containing adequate information for purposes of confirming the plan. See In re Southland Corp., 124 B.R. 211, 227 (Bankr. N.D. Tex. 1991) (approving disclosure statement in prepackaged case retroactively); In re Station Casinos, Inc., No. 09-52477 (Bankr. D. Nev. 2011) (same); see also 7 Collier on Bankruptcy ¶ 1126.03[2] (16th ed. 2022) ("Where solicitation of votes occurs prepetition, the court may retroactively review the disclosure statement and approve it as containing adequate information.").
87. The Debtors respectfully request that this Court retroactively approve the Disclosure Statement (Dkt. 48) as containing adequate information within the meaning of Section 1125(a)(1) of the Bankruptcy Code for purposes of confirming the Plan. As described in detail in Section V above, the Disclosure Statement contains comprehensive information regarding every material aspect of the Debtors' businesses, their financial condition, the terms of the Plan, and the risks associated with the reorganization — including a description of the Debtors' business and operations, historical and projected financial information, a detailed description of the Debtors' prepetition capital structure and the events leading to the Chapter 11 filing, a summary of the RSA and the arm's-length negotiations that produced it, a detailed summary of the Plan and the treatment of each class of claims and interests, a valuation analysis, a liquidation analysis, a description of the DIP financin

UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF OHIO EASTERN DIVISION

I. PRELIMINARY STATEMENT

II. JURISDICTION AND VENUE

III. BACKGROUND

IV. THE PREPETITION SOLICITATION

V. THE DISCLOSURE STATEMENT CONTAINS ADEQUATE INFORMATION

VI. SOLICITATION AND TABULATION PROCEDURES

VII. LEGAL AUTHORITY

Record

Parties

Dates

Amounts