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01-19-2012, 01:35 PM
Hostess Brands Inc. filed for Chapter 11 bankruptcy protection Wednesday to confront burdensome debt and labor costs that the Twinkies and Wonder Bread baker says have left it fighting to compete.
Twinkies and Wonder Bread maker Hostess Brands Inc has filed for Chapter 11 bankruptcy protection, struggling under the weight of debt and soaring labor force expenses. [[Photo: Getty Images)
.The privately held Irving, Texas, company's move marks the second significant court restructuring in the past several years. In a statement, Hostess said the current cost structure "is not competitive, primarily due to legacy pension and medical benefit obligations and restrictive work rules." It said it would be able to maintain operations thanks to a $75 million financing commitment from a group of lenders.
.In bankruptcy, Hostess said it plans to continue negotiating with 12 unions to modify the collective-bargaining agreements governing the employment of its union workers, who comprise 83% 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. "That is the purpose and the focus of these Chapter 11 cases."
If Hostess can't obtain voluntary modifications to the labor agreements, it said it would ask the U.S. Bankruptcy Court in White Plains, N.Y., to let it reject the agreements altogether.
"We remain hopeful that we can reach an agreement that will allow us to amend our labor contracts so that we can emerge from Chapter 11 as a highly competitive company that provides secure jobs for our employees," President and Chief Executive Brian Driscoll said in the statement.
The Wonder Bread maker will continue to operate while restructuring.
.The majority—nearly 92%—of Hostess' union employees belong to one of two unions: the International Brotherhood of Teamsters or the Bakery, Confectionery, Tobacco Workers & Grain Millers International Union.
"While no agreement has been reached to date, the Teamsters Union remains committed to working with all stakeholders during the bankruptcy to find a mutually agreeable solution, if possible," said Dennis Raymond, director of the Teamsters Bakery and Laundry Conference, in a statement.
The 82-year-old company said it plans to continue operating while it restructures, to which end it secured a commitment for $75 million in bankruptcy financing from a group of its existing lenders led by Silver Point Capital LP. The loan is subject to court approval.
Related Video
Hostess Brands is preparing to file for bankruptcy protection. Shira Ovide joins Markets Hub to discuss a brief history of the company that gave the world Twinkies and Wonder Bread.
.. WSJ's Mike Spector checks in on Mean Street to take a look at Hostess's Chapter 11 filing and the impact of labor costs on the company. Photo: PAUL J. RICHARDS/AFP/Getty Images.
.Hostess's filing marks what is known as a Chapter 22 proceeding in restructuring circles, since it had already sought bankruptcy protection once before. Hostess, which in court papers reported $1.4 billion in debt as of Dec. 10, has struggled since emerging from bankruptcy proceedings in February 2009.
It has tried to find a white knight that would buy the company outright or take individual businesses, to no avail.
Hostess said in its filing that its biggest unsecured creditor is the Bakery & Confectionary Union & Industry International Pension Fund, which it owes about $944 million.
The company's private-equity owner, Ripplewood Holdings, invested $40 million in Hostess last year. Hedge funds Monarch Alternative Capital, Silver Point Capital and others loaned the company $20 million late last year.
"Ripplewood rescued Hostess from potential liquidation after a 4 1/2 year bankruptcy process resulting in saved jobs and brands," Ripplewood spokesman Jeffrey Taufield said Wednesday. "Ripplewood accomplished this by forming a partnership with labor that included providing the company's union employees with meaningful ownership in the business. Ripplewood continues to have confidence in Hostess' future and believes that through this re-organization process Hostess will re-emerge and be successful."
Hostess, previously called Interstate Bakeries Corp., reported $981.6 million in assets as of Dec. 10. It operates 36 bakeries, 565 distribution centers, approximately 5,500 delivery routes and 570 bakery outlet stores throughout the U.S.
.Sales of its signature Twinkies have declined a bit recently while the overall bakery-snacks category has been about flat. Nearly 36 million packages of Twinkies were sold in the year ended Dec. 25, down almost 2% from a year earlier, according to data from SymphonyIRI Group, a Chicago-based market-research firm. The data captures sales from supermarkets, drugstores, mass-market retailers and convenience stores, but exclude sales from Wal-Mart Stores Inc. and club stores.
Hostess has kept prices relatively high, making it harder to charge even more as costs for ingredients and fuel rose.In the 1960s and 1970s, the company grew by acquiring several other baking outfits across the U.S. By 1995, the company had changed its name to IBC, and purchased its largest rival, Continental Baking Co., for $330 million, maker of Wonder Bread.
Hostess has hired law firm Jones Day to represent it in its bankruptcy, which The Wall Street Journal reported was expected this week. The company also hired Perella Weinberg Partners as its investment banker.
Hostess's workers have their own top-shelf restructuring advisers negotiating on their behalf. Matthew Feldman, a bankruptcy lawyer at Willkie Farr & Gallagher, and Harry Wilson, the head of turnaround and restructuring firm MAEVA Advisors, are representing the Teamsters, said people familiar with the matter.
Messrs. Feldman and Wilson, who have been advising the Teamsters since last summer, also worked together on President Barack Obama's auto task force during the government's rescue of General Motors and Chrysler.
Twinkies and Wonder Bread maker Hostess Brands Inc has filed for Chapter 11 bankruptcy protection, struggling under the weight of debt and soaring labor force expenses. [[Photo: Getty Images)
.The privately held Irving, Texas, company's move marks the second significant court restructuring in the past several years. In a statement, Hostess said the current cost structure "is not competitive, primarily due to legacy pension and medical benefit obligations and restrictive work rules." It said it would be able to maintain operations thanks to a $75 million financing commitment from a group of lenders.
.In bankruptcy, Hostess said it plans to continue negotiating with 12 unions to modify the collective-bargaining agreements governing the employment of its union workers, who comprise 83% 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. "That is the purpose and the focus of these Chapter 11 cases."
If Hostess can't obtain voluntary modifications to the labor agreements, it said it would ask the U.S. Bankruptcy Court in White Plains, N.Y., to let it reject the agreements altogether.
"We remain hopeful that we can reach an agreement that will allow us to amend our labor contracts so that we can emerge from Chapter 11 as a highly competitive company that provides secure jobs for our employees," President and Chief Executive Brian Driscoll said in the statement.
The Wonder Bread maker will continue to operate while restructuring.
.The majority—nearly 92%—of Hostess' union employees belong to one of two unions: the International Brotherhood of Teamsters or the Bakery, Confectionery, Tobacco Workers & Grain Millers International Union.
"While no agreement has been reached to date, the Teamsters Union remains committed to working with all stakeholders during the bankruptcy to find a mutually agreeable solution, if possible," said Dennis Raymond, director of the Teamsters Bakery and Laundry Conference, in a statement.
The 82-year-old company said it plans to continue operating while it restructures, to which end it secured a commitment for $75 million in bankruptcy financing from a group of its existing lenders led by Silver Point Capital LP. The loan is subject to court approval.
Related Video
Hostess Brands is preparing to file for bankruptcy protection. Shira Ovide joins Markets Hub to discuss a brief history of the company that gave the world Twinkies and Wonder Bread.
.. WSJ's Mike Spector checks in on Mean Street to take a look at Hostess's Chapter 11 filing and the impact of labor costs on the company. Photo: PAUL J. RICHARDS/AFP/Getty Images.
.Hostess's filing marks what is known as a Chapter 22 proceeding in restructuring circles, since it had already sought bankruptcy protection once before. Hostess, which in court papers reported $1.4 billion in debt as of Dec. 10, has struggled since emerging from bankruptcy proceedings in February 2009.
It has tried to find a white knight that would buy the company outright or take individual businesses, to no avail.
Hostess said in its filing that its biggest unsecured creditor is the Bakery & Confectionary Union & Industry International Pension Fund, which it owes about $944 million.
The company's private-equity owner, Ripplewood Holdings, invested $40 million in Hostess last year. Hedge funds Monarch Alternative Capital, Silver Point Capital and others loaned the company $20 million late last year.
"Ripplewood rescued Hostess from potential liquidation after a 4 1/2 year bankruptcy process resulting in saved jobs and brands," Ripplewood spokesman Jeffrey Taufield said Wednesday. "Ripplewood accomplished this by forming a partnership with labor that included providing the company's union employees with meaningful ownership in the business. Ripplewood continues to have confidence in Hostess' future and believes that through this re-organization process Hostess will re-emerge and be successful."
Hostess, previously called Interstate Bakeries Corp., reported $981.6 million in assets as of Dec. 10. It operates 36 bakeries, 565 distribution centers, approximately 5,500 delivery routes and 570 bakery outlet stores throughout the U.S.
.Sales of its signature Twinkies have declined a bit recently while the overall bakery-snacks category has been about flat. Nearly 36 million packages of Twinkies were sold in the year ended Dec. 25, down almost 2% from a year earlier, according to data from SymphonyIRI Group, a Chicago-based market-research firm. The data captures sales from supermarkets, drugstores, mass-market retailers and convenience stores, but exclude sales from Wal-Mart Stores Inc. and club stores.
Hostess has kept prices relatively high, making it harder to charge even more as costs for ingredients and fuel rose.In the 1960s and 1970s, the company grew by acquiring several other baking outfits across the U.S. By 1995, the company had changed its name to IBC, and purchased its largest rival, Continental Baking Co., for $330 million, maker of Wonder Bread.
Hostess has hired law firm Jones Day to represent it in its bankruptcy, which The Wall Street Journal reported was expected this week. The company also hired Perella Weinberg Partners as its investment banker.
Hostess's workers have their own top-shelf restructuring advisers negotiating on their behalf. Matthew Feldman, a bankruptcy lawyer at Willkie Farr & Gallagher, and Harry Wilson, the head of turnaround and restructuring firm MAEVA Advisors, are representing the Teamsters, said people familiar with the matter.
Messrs. Feldman and Wilson, who have been advising the Teamsters since last summer, also worked together on President Barack Obama's auto task force during the government's rescue of General Motors and Chrysler.