Phoenix Converting - Chapter 11 Case Summary

Business Description

Phoenix Converting, Inc. ("Phoenix"); Valley Packaging Supply Co., Inc. ("Valley"); PCG/SPT Holdings, Inc. ("PCG"); Advanced Converting Works, Inc. ("Operating Entity Parent"); Advanced Converting Works Holdings, LLC ("Intermediate Parent"); ACW Flex Pack Management, Inc. ("Management"); and ACW Flex Pack, LLC ("Super Parent," and collectively, the "Debtors") operate an integrated, specialized flexible-packaging business known as the "Flex Pack Business."

The Flex Pack Business is among North America's largest producers of specialty pouches. It manufactures pouches, bags, and roll stock from thin, pliable materials such as films, foils, and laminates for the food and beverage, pet, household, healthcare and medical, and other specialty consumer-product markets.

• The Flex Pack Business focuses primarily on toll converting and value-added pouching and also provides bag converting, slitting, lamination, and related packaging-development services.
• Its products include technically complex formats such as children's applesauce pouches with integrated spouts and large gusseted pet-food bags made with alternative, recyclable materials.
• The Debtors manufacture bags and pouches in customer-specific sizes, shapes, materials, and designs, incorporating features such as resealable zippers and integrated spouts.

---

Corporate History

The Flex Pack Business was assembled from businesses with longstanding operations in the flexible-packaging industry:

• Valley was founded in Green Bay, Wisconsin, in 1953 and initially produced cellophane and polyethylene bags. It subsequently expanded into stand-up pouches and multilayer bags, constructing a 65,000-square-foot facility in 2000 that was later expanded to approximately 187,000 square feet with more than 40 production lines.
• Bag-Pack, Inc. was founded in Hamilton, Ohio, in 1988 to manufacture custom polyethylene bag pouches and other packaging products.
• Precision Color Graphics, PCG's corporate predecessor, was founded in Franklin, Wisconsin, in 1992. It initially provided prepress services before expanding into graphic design and 3D rendering. Specialty Packaging Technologies was later created as a sister entity offering pouching capabilities.
• Phoenix was founded in Itasca, Illinois, in 2006, with a focus on medical packaging. It added a second facility with slitting and laminating capabilities in 2010.
• American Pouch Converters was founded in Cleburne, Texas, in 2016 and became a participant in the child-resistant packaging market.

Formation and Expansion of ACW

In 2018, Valley and Phoenix combined to form Advanced Converting Works, or "ACW," with the objective of creating an integrated packaging platform providing services from package design through pouching.

• Bag-Pack, Inc., Precision Color Graphics, Specialty Packaging Technologies, and American Pouch Converters were added to the platform over the following several years.
• By 2021, the enterprise had more than 100 production lines and had become one of North America's largest specialty-pouch producers.
• In early 2024, the business was rebranded as "Flex Pack" to reflect its focus on flexible-packaging solutions.

PCG Rationalization

Until 2025, PCG operated a Franklin, Wisconsin, facility that designed and produced printing plates for the Flex Pack Business and third parties. Following years of underperformance, management determined that plate production was outside the core pouching business and restructured the Flex Pack Business around Phoenix and Valley.

• PCG ceased plate production in November 2025 upon expiration of the Franklin facility lease.
• Many former PCG employees were rehired by The Robinette Company ("Robinette"), a commonly owned non-Debtor.
• PCG now has no employees or physical facility and conducts limited plate-order fulfillment, third-party pouch brokerage, and payment-collection activities.

Organizational Structure

The Flex Pack Business is conducted primarily through Phoenix, Valley, and PCG, while Management provides shared services. Super Parent, Intermediate Parent, and Operating Entity Parent principally serve as holding companies.

• Super Parent owns 100% of the voting equity of Intermediate Parent and Management.
• Intermediate Parent owns 100% of the voting equity of Operating Entity Parent.
• Operating Entity Parent owns 100% of the voting equity of Phoenix, Valley, and PCG.
• Super Parent also owns 100% of Flex Pack Industries, Inc., which owns 100% of Bag Pack Holdings, Inc. and FPI Holdings, Inc. These non-Debtor affiliates have no operations, employees, or material assets, although certain entities remain obligated on debts including the Bank's credit facility.

---

Operations Overview

The Flex Pack Business operates nearly 100 production lines across approximately 297,000 square feet of manufacturing space at the Green Bay Facility in Wisconsin and two Itasca Facilities in Illinois. The Green Bay Facility performs pouching at a large scale and serves as a strategic tolling partner for large converters requiring regular overflow capacity, while the Itasca Facilities supply additional pouching capacity along with higher-margin printing, laminating, and slitting services for medical customers subject to rigorous quality-approval standards.

Toll-Converting and Turnkey Services

The substantial majority of the Flex Pack Business's revenue is generated through toll converting. Under this model, customers—typically large Tier One packaging companies and brand owners—retain ownership of their materials while the Debtors convert them into finished or semi-finished packaging for a service fee.

• The model largely insulates the Debtors from raw-material price fluctuations and tariff-related cost volatility.
• A typical engagement involves slitting customer-owned rolls of printed plastic film into smaller rolls and folding and sealing the material into customized pouches, with or without resealable zippers.
• The Flex Pack Business also provides turnkey services under which the Debtors source the raw materials used in production.

Medical Packaging

Several longstanding customers purchase packaging for medical products. Medical-packaging facilities are subject to an approval process that ordinarily takes between six and 12 months and requires certification of both the facility and base materials. One of the Itasca Facilities holds the required approval.

• Medical customers generally use the turnkey model, under which the Debtors source unprinted plastic film and metal foil from approved vendors.
• The Debtors laminate the materials using chemical solvents to obtain characteristics such as durability, impermeability, and shelf life, print the resulting sheets, and then slit and pouch the material into finished medical-grade packaging.

Itasca Facilities

Phoenix operates two leased buildings in Itasca, Illinois: an approximately 50,000-square-foot facility at 1251 W. Ardmore Avenue ("Building One") and an approximately 60,000-square-foot facility at 1500 Bryn Mawr Avenue ("Building Two").

• The Itasca Facilities contain approximately 30 pouch machines, 10 slitters, four printing presses, three laminators, and two die cutters, all owned by the Debtors.
• Building One primarily performs pouching, while Building Two principally conducts laminating, printing, and slitting.
• Phoenix directly employs approximately 50 employees and contracts with many of its own customers and suppliers, while receiving shared services from Management and sharing certain tolling work with Valley.
• The Flex Pack Business's officers and the Debtors' internal bookkeeping team maintain their primary offices in Building Two.

Green Bay Facility

Valley operates the approximately 187,000-square-foot Green Bay Facility at 3187 Commodity Lane in Green Bay, Wisconsin, where operations are primarily focused on pouching.

• The facility houses approximately 43 pouch machines, of which 39 are owned by the Debtors, three are leased, and one is owned by a customer and used for that customer's work.
• The Debtors state that they have not completed a comprehensive analysis of whether agreements they currently treat as true leases constitute secured financing arrangements, and that the classification of such contracts, as well as the stated numbers and types of equipment, remain subject to review and correction in connection with the preparation of their schedules of assets and liabilities.
• Valley directly employs approximately 110 employees and maintains many of its own supplier and customer relationships.
• Operating Entity Parent is the primary lessee of the Green Bay Facility, while Valley and several other Debtors guarantee the lease.

Shared Services and Workforce

Management centralizes services used by the other Debtors and employs approximately 10 individuals, including the Flex Pack Business's officers, certain managers, sales and purchasing personnel, and internal bookkeeping staff. Management also contracts and pays for shared legal, accounting, human-resources, information-technology, and insurance services.

• The Debtors employ approximately 175 full-time employees, comprising approximately 29 salaried employees and 146 hourly employees. Each employee is employed by Phoenix, Valley, or Management.
• The Debtors also use five independent contractors and typically engage between 13 and 30 temporary workers per week through four staffing agencies.

Principal Assets

As reflected in the Debtors' audited combined balance sheet as of Dec. 31, 2025, total assets had a net book value of approximately $42.99 million, principally consisting of the items below. The combined balance sheet also included certain defunct non-Debtor affiliates, but the Debtors expect their inclusion to be immaterial because those entities are not believed to own property of any value.

• Approximately $843,000 of cash and cash equivalents.
• Approximately $5.42 million of accounts receivable, net of an allowance for credit losses.
• Approximately $3.05 million of inventory, comprising approximately $2.39 million of raw materials, $169,000 of work in progress, and $496,000 of finished goods.
• Approximately $318,000 of prepaid expenses and other current assets.
• Approximately $4.17 million of property and equipment, net of accumulated depreciation, carried at a gross cost of approximately $23.71 million and stated net of approximately $19.54 million of accumulated depreciation. Approximately $20.39 million of the gross cost consists of machinery and equipment used across the Debtors' production lines, including pouch machines, slitters, printing presses, laminators, and die cutters.
• Approximately $15.40 million of right-of-use operating lease assets and $844,000 of finance lease assets, net.
• Approximately $12.94 million of goodwill, net of accumulated amortization, arising from the acquisitions through which the Flex Pack Business was assembled.

The Debtors caution that net book value reflects historical cost less depreciation and amortization and does not necessarily represent sale value. They believe a going-concern sale would produce more value than a piecemeal liquidation, but that the resulting value is highly unlikely to approach net book value.

---

Prepetition Obligations

The Debtors' largest liability is a term loan owed to City National Bank of Florida (the "Bank") under the Main Street Lending Program (the "MSLP Loan"). The Bank alleges that approximately $34.3 million is outstanding and that the loan is secured by liens on substantially all of the Debtors' assets.

MSLP Loan

• In December 2020, the Debtors obtained the MSLP Loan in an original principal amount of $34.4 million.
• Operating Entity Parent is the borrower. The other Debtors, together with defunct non-Debtor entities FPI Holdings, Inc. and Bag Pack Holdings, Inc., are guarantors.
• The loan documents granted the Bank a security interest in substantially all of the Debtors' property, including accounts, goods, inventory, equipment, vehicles, software, securities, investment property, financial assets, deposit accounts, chattel paper, and related proceeds.
• In a prepetition collection action, the Bank alleged that $34,327,396.42 was due under the loan documents.

Other Obligations

• The Debtors' other significant liabilities include trade payables to vendors and suppliers, obligations under the Green Bay and Itasca facility leases, accrued compensation, and other accrued liabilities.
• Operating Entity Parent is the tenant under the Green Bay Facility lease, and each Debtor other than Super Parent is a guarantor. Phoenix is the lessee of both Itasca Facilities.
• The Debtors entered into retention agreements with five non-insider management employees before the Petition Date. Sixty percent of each agreed bonus was paid prepetition and is subject to disgorgement if the employee does not remain employed through Dec. 31, 2026. An aggregate $56,000 remains payable, subject to continued employment through that date and court approval.
• Prepetition employee obligations include outstanding wages, salaries, commissions, related withholdings and taxes, medical and other insurance benefits, accrued vacation, reimbursable expenses, and accrued contributions to employee benefit plans. The Debtors seek authority to pay these obligations, with no employee receiving more than $17,150 under the requested relief. The requested relief does not cover Chief Executive Officer Steven Boyer and Chief Financial Officer Michael Lubesnick, the two employees the Debtors believe to be insiders under section 101(31) of the Bankruptcy Code, whose prepetition wages were paid in full before the Petition Date.

---

Events Leading to Bankruptcy

Market Headwinds and Operating Performance

Following the December 2020 financing, the Flex Pack Business encountered sustained market and operating pressures. Raw-material, freight, and labor costs increased in the post-pandemic inflationary environment, manufacturing labor became more difficult to recruit and retain, and rising interest rates increased the Debtors' cost of capital.

• From late 2022 through 2024, customers reduced inventory accumulated during the pandemic, resulting in a prolonged period of destocking across the flexible-packaging industry.
• As demand declined, large packaging companies that had outsourced toll-converting work to the Debtors brought more production in-house to use their available capacity.
• Consequently, the Debtors' revenue and cash flow did not recover to previously projected levels.

Restructuring Initiatives and Liquidity Support

In August 2024, the Debtors installed new executive leadership and implemented a restructuring plan projected to generate approximately $2.2 million of incremental annual EBITDA.

• The Debtors closed PCG's Franklin facility and an underperforming Hamilton, Ohio, facility, with the Hamilton closure yielding approximately $1.1 million of net annual savings.
• A corporate restructuring eliminated six positions and was projected to generate approximately $1 million of net annual savings.
• Operations were consolidated into the Green Bay and Itasca Facilities.
• Equity owners contributed $2.5 million of additional capital: $1 million in December 2024 and $500,000 in each of April, October, and December 2025.
• The Debtors managed liquidity without access to a revolving credit facility.

MSLP Default and Enforcement

A lag between recovery in the packaging market and improvement in the Flex Pack Business's performance left the Debtors unable to service or refinance the MSLP Loan.

• The Debtors failed to make an approximately $5.2 million principal payment due in December 2024.
• When the MSLP Loan matured in December 2025, the Debtors could not repay the remaining principal balance. The amounts due substantially exceeded available cash, net working capital, and other liquidity sources.
• The Debtors' audited combined financial statements for the year ended Dec. 31, 2025, included a qualification reflecting substantial doubt regarding their ability to continue as a going concern.
• On May 11, 2026, the Bank filed a complaint against the Debtors in the Circuit Court of the 11th Judicial Circuit of Miami-Dade County, Florida, asserting breach of the note and loan agreement, breach of the guaranties, and an action to enforce the security agreement. The complaint alleges $34,327,396.42 is due under the loan documents.

Before the Petition Date, the Debtors repeatedly sought to meet with the Bank regarding their financial condition, prospective bankruptcy sale, and potential DIP financing or use of cash collateral. According to the declaration, the Bank's counsel stated that, in light of the termination of the MSLP, the Bank believed it was deprived of authority to make any concessions or accommodations under the applicable loan documents other than commencing litigation, and therefore did not believe a meeting was warranted.

Prepetition Sale Process

With conventional refinancing unavailable given the Debtors' leverage profile, the Debtors and their advisors determined that pursuing a going-concern sale of the Flex Pack Business was the best available means of maximizing creditor recoveries. After interviewing three investment banking firms, the Debtors retained SC&H Group ("SC&H") in April 2026.

• SC&H began soliciting financial buyers on May 14, 2026. The Debtors initially limited outreach to financial buyers to avoid prematurely disclosing their financial difficulties and other sensitive information to strategic industry participants.
• SC&H contacted 79 prospective financial buyers. Twenty-six executed nondisclosure agreements, eight accessed a virtual data room, five subsequently declined the opportunity, and three remained active as of the declaration date.
• An affiliate of Edgewater Flex Pack, LLC, one of the Debtors' major shareholders, expressed interest in acquiring the Flex Pack Business as a going concern.
• To address potential conflicts, the Debtors appointed Dan Dooley, a senior managing director of J.S. Held, as special independent director with sole authority over sale-related decisions and limited Edgewater to the same access to internal financial information as other prospective buyers.

Chapter 11 Filing and Go-Forward Strategy

On July 20, 2026, each Debtor commenced a voluntary Chapter 11 case in the U.S. Bankruptcy Court for the Northern District of Illinois. The filings were authorized unanimously by the Debtors' respective boards of directors and managers.

• The Debtors intend to operate the Flex Pack Business in the short term while pursuing an expedited going-concern sale of substantially all assets.
• The contemplated postpetition process includes expanding outreach to strategic buyers and remarketing the Flex Pack Business to parties that previously declined the opportunity.
• The Debtors state that they lack sufficient unrestricted cash or other financing to continue operating and administer the Chapter 11 cases without immediate access to the Bank's cash collateral.
• The Debtors seek interim authority to use cash collateral through Aug. 7, 2026, for ordinary-course expenditures including payroll, maintenance and shipping, supplies, lease payments, taxes, and insurance under a budget subject to a permitted variance of up to 10%.
• As adequate protection, the Debtors propose replacement liens on postpetition assets, excluding Phoenix's assets and claims and causes of action arising under Chapter 5 of the Bankruptcy Code, to the same validity, priority, and extent as the Bank's prepetition liens and solely to secure any diminution in the value of the Bank's cash-collateral interest.

Other First-Day Relief

• The Debtors request joint administration of the seven Chapter 11 cases for procedural purposes under Phoenix's case docket.
• The Debtors seek authority to maintain their six existing bank accounts at the Bank, continue using their integrated cash-management system, business forms, books, and records, and continue necessary intercompany transactions. The Debtors also seek a finding that the investment and deposit requirements of section 345(b) of the Bankruptcy Code are satisfied, or alternatively that cause exists to excuse compliance, on the basis that the accounts are held at an FDIC-insured institution that is an approved depository in the applicable United States Trustee region.
• The Debtors seek to preserve uninterrupted utility services and propose, upon request, cash deposits totaling approximately $34,334.54 as adequate assurance of postpetition payment.
• The Debtors request an extension through Aug. 17, 2026, to file their schedules of assets and liabilities, current income and expenditures, executory contracts and unexpired leases, and statements of financial affairs.
• The Debtors anticipate filing a motion early in the Chapter 11 cases seeking authority to implement a key employee incentive program for Steven Boyer and Michael Lubesnick, subject to court approval under section 503(c) of the Bankruptcy Code. The Debtors separately anticipate seeking court approval to assume the five prepetition retention agreements later in the cases.