A New Jersey bankruptcy judge on Monday granted interim approval for global label maker Multi-Color Corp. to tap into post-petition financing, yet he halved the amount of money that lenders can initially roll up due to concerns about the value of collateral securing some first-lien claims.
U.S. Bankruptcy Judge Michael B. Kaplan said during a hearing that he was not willing to approve the full $250 million rollup of old debt into the debtor-in-possession package in a "possibly undersecured environment," authorizing instead a $125 million rollup. He also deferred approval of half of the 3% backstop premium pending the appointment of a committee.
The debtor itself had come to court ready to ask for the immediate use of $125 million in cash — $25 million less than it was requesting on Friday — after spending the weekend trying unsuccessfully to reach an agreement with objecting creditors led by Canyon Capital Advisors LLC, debtor's counsel Steven N. Serajeddini said during the hearing.
Canyon, via ad hoc groups of cross-holders and excluded first-lien lenders, had argued the financing would improperly reallocate value from unsecured creditors to MCC's favored lenders and its controlling private equity sponsor Clayton Dubilier & Rice LLC. They also said the DIP package would ensure a predetermined restructuring outcome rather than serve the best interests of MCC's estate.
Judge Kaplan said he understood the concerns but overruled their objections on Monday.
Bruce Bennett, counsel for the objecting cross-holder group, said during the hearing that he would immediately appeal and hopes to bypass federal district court and go directly to the Third Circuit.
Atlanta-based MCC produces labels for a broad range of automotive, pharmaceutical, beauty, laundry, food and other consumer products, including pressure-sensitive labels on Presidente beer bottles that can withstand submersion in ice-cold water and Hellmann's mayonnaise labels made from recycled plastic, according to its website.
It has over 12,000 employees in 25 countries and over 90 facilities, Chief Restructuring Officer Garrett Gabel said in a first-day declaration. It hopes to trim $3.9 billion from its balance sheet through bankruptcy.
MCC filed for Chapter 11 on Thursday with a restructuring support agreement and a pre-packaged plan in hand. Its original DIP agreement provided for $250 million in new money, with $150 million becoming available upon interim court approval, as well as a $250 million rollup of first-lien claims. The DIP package also included a $7.5 million backstop premium and $150 million in incremental funding, according to court filings.
After a six-hour court hearing on Friday, Judge Kaplan allowed MCC to access up to $45 million of its cash collateral and DIP proceeds so that the company would have enough money to function, but he delayed a full ruling on the interim request until Monday.
Fearing over the weekend that MCC might not be able to reach an agreement with objecting lenders, the debtor worked with its fronting bank to create a path forward so that overseas payroll could still go out on time, including by reducing MCC's interim funding request to $125 million from $150 million, Serajeddini said in court on Monday.
The debtor will continue to try to negotiate a fully consensual bankruptcy plan with objectors, he said.
"We've cut close to the bone here," Serajeddini said, adding that MCC may need to come back to court for another interim hearing if $125 million is not enough.
The cross-holder group had also argued New Jersey is not the proper venue for the case, and therefore, they "do not consent to any proceedings going forward today," Bennett said on Monday.
The entity MCC used to establish venue for all the debtors has neither its principal place of business nor principal assets in New Jersey, Bennett said in his client's objection.
However, other secured lenders had backed the restructuring agreement and were still prepared to fund the full $150 million interim amount because they believe that is how much the company needs, considering it is an international business with many stakeholders, according to their lawyer Evan Fleck.
The amount was also negotiated with his group and sponsor CD&R, he said, adding that at least 85% of the funding — or about $128 million of the original $150 million — was coming from his secured lender clients.
Judge Kaplan found the New Jersey venue was appropriate but allowed that parties' rights would be reserved for future argument. He also found that MCC exercised sound business judgment when it entered into the RSA and related DIP financing. The moves materially deleverage the debtor's balance sheet and give it needed liquidity, Kaplan said, reading an order from the bench.
The 72% of first-lien debt holders who supported the RSA represent a broad consensus, and the negotiated prepackaged plan sends a strong signal to the marketplace about MCC's stability, Kaplan said.
He also agreed with the debtor that failure to approve the financing would immediately and irreparably harm operations, vendor relations and the company's going-concern value.
And while he acknowledged that the rival lenders did offer their own DIP package, Judge Kaplan noted it was not coupled with a feasible exit proposal and lacked broader lender support.
While the one-to-one rollup may "produce uplift for certain lenders," it cannot be viewed in a vacuum when considering that the cash is necessary to avoid a liquidity crisis, Kaplan said.
A final hearing is scheduled for March 3 with an eye toward a May confirmation hearing.
Canyon and its affiliates hold roughly $49 million of MCC's cash-flow term loans, nearly $51.6 million of various senior secured notes, and about $253 million of senior unsecured notes, according to court filings.
A spokesperson for the MCC and an attorney for Canyon did not immediately respond to requests for comment.
The debtor is represented by Steven N. Serajeddini, Rachael M. Bentley, Peter A. Candel and Ashley L. Surinak of Kirkland & Ellis LLP and Michael D. Sirota, Warren A. Usatine and Felice R. Yudkin of Cole Schotz PC.
The excluded first-lien lenders are represented by Sheila Sadighi, Nicole T. Castiglione and Frank T.M. Catalina of Rolnick Kramer Sadighi LLP and Mark T. Stancil and Christopher DiPompeo of Willkie Farr & Gallagher LLP.
The cross-holder ad hoc group is represented by Paul R. DeFilippo and James N. Lawlor of Wollmuth Maher & Deutsch LLP and Bruce Bennett and Benjamin Rosenblum of Jones Day.
The secured ad hoc group is represented by Evan R. Fleck, Matthew Brod and Justin Cunningham of Milbank LLP and Thomas M. Walsh and Sam Della Fera Jr. of Chiesa Shahinian & Giantomasi PC.
CD&R is represented by Jeffrey Cohen, Eric S. Chafetz, Colleen M. Restel and Philip Gross of Lowenstein Sandler LLP, Erica S. Weisgerber, Zach Saltzman, Nick S. Kaluk III and Mitch Carlson of Debevoise & Plimpton LLP, and Ray C. Schrock, Candace M. Arthur, Ryan Preston Dahl and Deniz Irgi of Latham & Watkins LLP.
The Office of the U.S. Trustee is represented by its own Jeffrey M. Sponder and Jane M. Leamy.
The case is In re: Multi-Color Corporation, case number 3:26-bk-10910, in the U.S. Bankruptcy Court for the District of New Jersey.

Feb 2