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Hostess Files for Chapter 11 Again

FoodProcessing.com
01/12/2012

For the second time in eight years, Hostess Brands Inc., Irving, Texas, filed for Chapter 11 bankruptcy protection. The filing was made Jan. 11.

“The company’s current cost structure is not competitive, primarily due to legacy pension and medical benefit obligations and restrictive work rules,” a company announcement said. “Those issues, combined with the economic downturn and a more difficult competitive landscape, created a worsening liquidity situation that prompted the need for a reorganization.”

The formerly public company emerged from bankruptcy reorganization in 2009, primarily owned by various affiliates of Ripplewood Holdings investment firm and with equity stakes by its unions.

Concurrent with this year’s filing, the company said it had a commitment for $75 million in debtor-in-possession (DIP) financing from a group of its existing first-lien lenders, led by Silver Point Capital LP. “The financing will enable the company to continue routine operations while undertaking a comprehensive financial and operational restructuring to transform it into a strong, competitive company.”

During the Chapter 11 proceeding, Hostess will continue operating its bakeries, outlet stores and distribution centers and delivering its products to customers across the country.

The company does not anticipate any disruptions in the manufacturing and delivery of any of its bread or cake products -- including Wonder, Merita and Butternut breads and Drake’s, Twinkies and Hostess cakes. “Hostess has some of our industry's most powerful and resilient brands,” said Pres./CEO Brian Driscoll. “Hostess Brands has tremendous inherent strengths to build upon.”

Back in 2004, when it was Interstate Bakeries Corp. and headquartered in Kansas City, the publicly held company entered Chapter 11 that took nearly five years to resolve.

“Previous efforts to implement incremental change, including a Chapter 11 case that was completed in February 2009, were insufficient,” the company said. “The cost structure left it poorly positioned to respond to a worsening economy, increased competition and consolidation in the industry that has given other bakery companies major economies of scale and workforce advantages.”

At the time, Interstate Bakeries was the largest baker in the country. That title now is held by Mexican-owned Bimbo Bakeries USA.

The Wall Street Journal reported Hostess plans to negotiate with 12 unions to modify the collective-bargaining agreements governing the employment of its union workers, who comprise 83 percent of its approximately 19,000 employees.

"Whether the debtors can achieve long-term viability depends directly and substantially on the debtors' ability to achieve dramatic change to their labor agreements, with a corresponding material reduction in their cost structure and legacy pension and medical obligations, and a restructuring of their capital structure," Hostess said in court papers obtained by the Journal.