Hostess Brands Inc. on Oct. 11 filed a bankruptcy reorganization plan that will cut wages and benefits and freeze pensions for its employees and will give its recent owner/investors zero for the cash they pumped into the company since 2009.
The plan cuts at least $1.6 billion in debt (other media reports estimated it to eliminate $2-2.5 billion in unsecured claims). It also estimates an emergence from Chapter 11 bankruptcy protection in January 2013 for the Irving, Texas-based baker. This is the second time in three years Hostess has been in bankruptcy reorganization.
Both union and non-union employees, totaling 19,000 full-time and part-time jobs, will take an 8 percent wage cut and will see only modest hikes in the coming years, as well as having their pension benefits frozen for at least two years. Healthcare and other benefits also will be cut.
Earlier in October, the same New York State Bankruptcy Court imposed the company’s plan on the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union, despite having 92 percent of the union members reject the proposal. At the time Hostess filed for bankruptcy protection (Jan. 11), the BCTGM union was the company’s largest unsecured creditor, with debts totaling $944.2 million. Hostess’ other large union, the International Brotherhood of Teamsters, narrowly approved the contract modifications in September.
Greg Rayburn, Hostess CEO, earlier said the company might have to liquidate assets if all unions did not accept the reorganization proposal.
"Upon emergence, our union-represented employees will hold a 25 percent equity ownership, a $100 million interest-bearing note and have two seats on the board of directors," said Rayburn in a statement carried by Reuters.
The filing noted that investors, which had pumped more than $150 million into the company since 2009, “will suffer a complete loss and receive nothing on account of these investments.”
"Demand for Hostess products has been very resilient, giving us a solid base to work from," Rayburn said. "With a competitive cost structure and fresh capital at our disposal, we can begin to make the kinds of investments in our business that is essential to our future success."
See this timeline of events as reported on FoodProcessing.com:
