By MIKE SPECTOR And JULIE JARGON
Hostess Brands Inc. is preparing to file for Chapter 11 bankruptcy protection as soon as this week, said people familiar with the matter, a move that would mark the second significant court restructuring for the Twinkie and Wonder Bread baker in the past several years.
The privately held Irving, Texas, company, which employs roughly 19,000 people and carries more than $860 million in debt, has been facing a cash squeeze amid high labor costs and rising prices for sugar, flour and other ingredients, according to people familiar with the matter. Those costs together have proved higher than the company's roughly $2.5 billion in annual sales, creating losses and cash shortfalls, they said.
Hostess also currently owes more than $50 million to vendors, which have been demanding payments on shortened timeframes after delivering goods because of Hostess's financial condition, one of the people said.
Hostess's filing would mark what's known as a "Chapter 22" in restructuring circles, since the company had already sought bankruptcy protection once before. Hostess, before called Interstate Bakeries Corp., slashed debt and costs during a four-year stint in bankruptcy court that began in 2004. The company has struggled since emerging from bankruptcy proceedings in February 2009.
The company's private-equity owner, Ripplewood Holdings, invested $40 million in Hostess last year to no avail. Hedge funds Monarch Alternative Capital, Silver Point Capital and others loaned the company $20 million late last year, but Hostess continues to have cash problems.
Hostess has lined up around $75 million in so-called debtor-in-possession financing to keep the company afloat during bankruptcy proceedings, the people said. Monarch, Silver Point and some other investors have agreed to extend the bankruptcy financing, with an option for other senior creditors to provide parts of the loan, the people said.
Once in bankruptcy court, Hostess will try to reduce debt and renegotiate labor contracts, many of them with the International Brotherhood of Teamsters and the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union, the people said. Hostess plans to file court papers soon threatening to reject or modify labor contracts under applicable bankruptcy rules, the people said. Such moves provide troubled companies a bargaining chip to try and get concessions from unionized workers.
A Teamsters spokesman declined to comment. A spokeswoman for Hostess's other main union didn't immediately respond to a request for comment.
Sales of Hostess's signature Twinkies have recently declined a bit while the overall bakery snacks category has been about flat. Nearly 36 million packages of Twinkies were sold in the year ending 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 excludes sales from Wal-Mart Stores Inc. and club stores.
Even so, Hostess has had trouble attracting consumers who have migrated away from white bread to whole grains and other healthier foods. Hostess released a whole-grain bread called Nature's Pride, but it hasn't sold well amid a small presence on shelves.
In addition, Hostess kept prices relatively high, making it harder to charge even more as costs for ingredients and fuel rose.
Hostess's bankruptcy filing would join the ranks of other companies forced to seek bankruptcy protection a second time in recent years. Between 2007 and 2011, more than 50 companies commenced "Chapter 22" bankruptcy cases, according to the most-recent data compiled by Edward Altman, a New York University finance professor.
One of Hostess's challenges will be to avoid liquidation, the fate of some other companies seeking bankruptcy protection a second time. In the past several years, for instance, Hollywood Video chain owner Movie Gallery Inc. and Polaroid Corp. have gone out of business after seeking bankruptcy protection a second time.
Others have survived multiple bankruptcies, including auto supplier Hayez Lemmerz International and Pliant Corp., a packaging company acquired after its second reorganization.
One sticking point for the baker: It pays about $100 million a year into so-called multi-employer pension plans that cover workers at a wide array of companies, the people said. Hostess, whose pension plan is underfunded by about $2 billion, wants to rescind its obligations to that plan and start paying into a plan that only covers its own workers, one of the people said.
Overall, Hostess carries hundreds of separate labor contracts that the company believes imposes cost burdens, people familiar with the matter said; the company also wants to reduce benefits costs.
The company also hopes that in bankruptcy it can attract new capital to bring production and distribution operations up to date, one of the people said.
Interstate Baking Co., the name Hostess used to go by long ago, was formed in 1930. Some brands Hostess still sells, including Drake's cakes, predate the company. In its infancy, the company made loaves of bread for grocery stores to sell.
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 is being advised by law firm Jones Day and financial services firm Perella Weinberg Partners. Hostess creditors are being advised by investment bank Lazard Ltd.
No comments:
Post a Comment