For a second time in just over two years years, bakery giant Hostess, known for the popular golden-yellow cream-filled Twinkies and squishy soft Wonder Bread products, has filed for bankruptcy protection, as reported by the Wall Street Journal and several other news outlets.
In regards to the latest bankruptcy filing, Hostess claims that obligations to their pension and medical benefits, increased competition and tougher economic conditions are primarily to blame.
The company’s predecessor, the Kansas City-based Interstate Bakeries, emerged from bankruptcy two years earlier in February of 2009.
Interstate had made its Chapter 11 filing in 2004.
Hostess has stated that their efforts to produce some gradual changes were deficient, including the previous bankruptcy filing.
In the Southern District of New York U.S. Bankruptcy Court, the Hostess bankruptcy documents lists $944.2 million as owed in unsecured debt to the Bakery & Confectionary Union & Industry International Pension Fund – and the pension fund is their leading unsecured creditor.
Next, at $11.8 million in unsecured debt, is their second biggest creditor, Central States, Southeast and Southwest Areas Pension Plan.
Brian Driscoll, the Hostess President and CEO, said that the company has been working together with its unions – in an effort to achieve a consensual arrangement – and modify its combined bargaining agreements.
The company, in laying blame on its legacy pension, limiting work rules and medical benefit obligations, states that its current cost structure does not allow Hostess to be competitive with other bakeries.
Additionally, their difficulty in providing liquidity, in these tough economic times, drove them to file for bankruptcy protection and reorganization.
Assets are listed between $500 million to $1 billon in the filing. Estimated liabilities are listed at over $1 billion.
A group of lenders, led by Silver Point Capital LP, provided the company with $75 million in a financing commitment. That sum will allow the privately held company, based in Texas, to maintain routine operations.
Hostess stated that they predict that their restructuring will allow them to return as a “strong and competitive” force. Bakeries, outlet stores and distributions centers, along with their delivery service, will continue. No disruption in production is anticipated. Still available to the public will be the popular name brands such as Drake's, Ding Dongs and Ho Hos, as well as other cake and bread products.
Hostess added that they expect to “create a sustainable cost structure with competitive employee benefit plans” while making the necessary pace-keeping modernizations in both their plants and fleets.
Driscoll said, “This company has tremendous potential if we can remove the barriers to success.”
The well-known bakery employs approximately 19,000 people in a workforce that encompasses 49 states in the U.S. According to the Hostess company website annual sales are roughly $2 billion.
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