Cross-Holder Group Experts, CD&R Witness Testify on Day 2 of Multi-Color DIP Trial; Court to Rule Tomorrow, March 26

Relevant Document:
UCC DIP Objection (Resolved)

Today Judge Michael Kaplan heard a second day of witness testimony in the trial on Multi-Color’s $675.5 million DIP financing. The judge said he understood the parties had made “tremendous progress” in mediation, but after a two-day adjournment of the trial did not lead to a settlement, he had to resume the hearing on the DIP financing opposed by the cross-holder ad hoc group and excluded first lien lenders.

Judge Kaplan said he plans to rule on the DIP motion when the hearing continues tomorrow, March 26, at 11:30 a.m. ET, after closing arguments.

The court heard live testimony this afternoon from three of the cross-holder group’s witnesses: Brendan Hayes and Stephen Preefer of Guggenheim Securities and Thomas Popovic of GA Group. All three have submitted expert reports under seal. Robert Volpe, partner at the debtors’ equity sponsor Clayton, Dubilier & Rice, also testified about his involvement with Multi-Color and the restructuring.

The DIP financing is made up of $250 million of new-money loans, a $250 million rollup of first lien claims, a $7.5 million DIP backstop premium and up to $150 million in additional new money. The new-money DIP loans would be paid in full on emergence, with the rollup DIP loans exchanged for new debt under the prepackaged plan.

The cross-holder ad hoc group and excluded first lien lenders are the most vocal opponents of both the DIP and the plan, which has been accepted by both voting classes. The cross-holder group maintains they proposed an alternative DIP with superior economic terms, but Multi-Color selected an “insider DIP” that would funnel value away from unsecured creditors to RSA parties CD&R and the secured ad hoc group. On March 17, the cross-holder group filed on the docket a backstop letter for a proposed $375 million DIP term loan facility, sent to the company on March 16.

The excluded first lien lenders, meanwhile, argue that the rollup of $250 million of prepetition loans violates the prepetition first lien cash flow credit agreement and first lien intercreditor agreement because it denies pro rata treatment to excluded first lien creditors.

Today Robert Feinstein of Pachulski Stang, counsel for the recently appointed official committee of unsecured creditors, noted the committee filed a “very limited DIP objection” last night raising “half a dozen smaller technical issues.” The committee is dropping its objection after resolving those issues with the debtors and lenders, he said.

Judge Kaplan opened the hearing by saying he saw “no choice” but to continue the DIP trial since mediation had not flowered into a settlement. The judge suggested the parties meet with him in person tomorrow at the Trenton, N.J. courthouse to continue negotiations “with me taking on a settlement role.”

However, debtors’ counsel later reported “we did not receive agreement from all parties to go to Trenton.” Judge Kaplan said his game plan for tomorrow is therefore to conclude the DIP hearing – and deliver a ruling – before turning to Barclays Bank’s motion to dismiss the cross-holder group’s lawsuit challenging the term lenders’ collateral package.

The judge said that tomorrow he will also address the scheduling of the motions to disband the UCC and the cross-holders’ motion to designate the Class 5 junior funded debt claim votes of the ad hoc secured group and CD&R.

Brendan Hayes of Guggenheim Securities, the cross-holder group’s investment banker, took the witness stand first. He testified that members of the cross-holder group and a third-party partner submitted a joint, non-binding indication of interest in the label maker’s sale process, making a March 18 offer to acquire the majority of Multi-Color Corp.’s equity at a headline total enterprise value of $3.35 billion.

Answering questions from debtors’ counsel, Hayes also conceded the proposal is not fully funded or committed yet. The cross-holder group has indicated it would bid for Multi-Color’s assets since February.

Hayes maintained that Multi-Color’s valuation analysis from Evercore, which estimates the enterprise value of the reorganized debtors at approximately $2.9 billion to $3.4 billion, is “low.” He said his expert report does not nail down the enterprise value for reorganized Multi-Color, but instead of using projections from management like Evercore, he uses forecasts from CD&R’s internal investment committee memos.

The Evercore analysis results in a valuation lower than the CD&R forecasts “to the tune of roughly $100 million,” Hayes said. “My recollection in that proposal is that distributions to creditors, the total value, is enhanced relative to the current plan,” he added.

Debtors’ counsel, however, emphasized that the cross-holder group’s bid for Multi-Color’s assets is premised on a $3.35 billion TEV – within Evercore’s valuation range, he noted. Counsel also suggested Hayes relied on CD&R forecasts prepared in October 2025, with “no evidence” CD&R relied on those forecasts in January when it approved the RSA.

Next, the court heard from Stephen Preefer of Guggenheim, who prepared a rebuttal expert report responding to the waterfall analysis of Jeffrey Kopa of AlixPartners, the debtors’ financial advisor. “We conclude the junior debt claims are entitled to substantially higher recoveries than what the plan currently contemplates,” Preefer asserted. He said $4.045 billion is the high end of the enterprise range value used in his report.

Debtors’ counsel questioned Preefer on his modifications to the Kopa report, which included changes to the treatment of certain intercompany loans and encumbered asset values. While one of Kopa’s inputs was a $508 million DIP claim, Preefer used a $125 million DIP claim – reflecting only the $125 million of new money funded under the interim DIP order, although Judge Kaplan also approved $125 million of the first lien debt rollup and $3.75 million of the backstop premium in the interim order.

Debtors’ counsel walked Preefer through various scenarios using Kopa’s model, indicating it shows junior funded debt claims recovering $27 million when using a $4.045 billion enterprise value and $383 million DIP claim (the $508 million used by Kopa, minus $125 million, on the assumption that only $125 million of the $250 million rollup will be approved). Counsel pointed out that this is lower than the roughly $30 million junior funded debt claims would recover under the plan.

Thomas Popovic, managing director at the GA Group, explained that his team valued Multi-Color’s personal property assets located in the U.S. at about $181.9 million. This is in contrast to Kopa, who “didn’t value these assets in any way,” according to Popovic. Under cross examination, he acknowledged that he had not “investigated or inspected” these personal property assets, instead relying on the fixed asset registrars provided by Multi-Color.

Finally, the court heard from Robert Volpe, partner at CD&R, who faced a lengthy cross-examination from the cross-holder group’s counsel Bruce Bennett of Jones Day. Bennett repeatedly asked if Volpe sees the sponsor as having a conflict of interest since it holds Multi-Color’s secured debt, unsecured debt and most of the debtors’ equity. Volpe answered that he doesn’t view the relationship as conflicted.

“Do you agree CD&R wants the largest possible recovery on unsecured claims, and MCC wants to pay the lowest possible amount on account of that debt?” Bennett asked, with Volpe responding, “I don’t think that’s always true.”

Bennett also asked if Volpe is “trying to maximize the recovery of your unsecured debt or trying to be the sponsor that acquired the company.” Volpe answered that “in this case, we were trying to do the right thing for the company.”

When Bennett pressed Volpe on whether he is trying to maximize the return on CD&R’s DIP loans, Volpe said he isn’t “particularly focused on the return on our DIP loan” and “didn’t think about the DIP on its own.” He confirmed, in response to Bennett’s questions, that he sees the DIP “as part of a package” that “included CD&R’s acquisition of a majority interest” in the reorganized company.

Bennett suggested there is a conflict of interest in CD&R wanting to buy Multi-Color equity at the lowest and Multi-Color wanting to sell equity at the highest price. When asked whether he aims to maximize returns on CD&R’s equity investments, Volpe said “we price our deals to basically the same target return,” “three times MOI (multiple on investment).”

Bennett also pointed to emails sent to CD&R from Evercore in fall 2025 after the firm had been retained as financial advisor by Multi-Color. CD&R had discussed its Multi-Color investments with Evercore in early 2025, Bennett emphasized, suggesting that the parties were not exchanging restructuring proposals at arm’s length later in the year.

On redirect, CD&R’s counsel Erica Weisgerber of Debevoise helped Volpe defend against insinuations that he failed to disclose the sponsor’s conflicts to the board and special committee. Volpe said he never withheld information about CD&R’s debt holdings and would have had no reason to hide them, and “thought it was relatively well understood in the marketplace.” Volpe also said he only had limited involvement with the special committee members, asserting he “saw them at a couple of our board meetings and that’s it.”

Weisgerber elicited Volpe’s testimony that in restructuring negotiations, he understood Evercore to be representing the company. CD&R had never retained Evercore as an advisor, he explained.

Read Octus’ coverage of Day 1 of the final DIP trial HERE.