NEW
YORK - (Mealey's) Twinkie maker Hostess
Brands Inc., which had been proceeding with a bankruptcy reorganization plan, moved
in the U.S. Bankruptcy Court for the Southern District of New York on Nov. 16
for authorization to convert its proceeding to Chapter 7, which would result in
liquidation of the company (In Re: Hostess Brands Inc., No.
12-22052, Chapter 11, S. D. N.Y. Bkcy.).
Hostess filed for Chapter 11 bankruptcy on Jan. 11.
Yesterday, the company issued a statement saying that if striking union
employees did not return to work by 5 p.m. Eastern Standard Time, it would move
for liquidation and close operations.
Emergency Motion
Today, the company filed an emergency motion in the
Bankruptcy Court seeking orders pursuant to 11 U.S. Code Sections 105, 363, 365
and 503(c) approving a plan to wind down its business and sell its assets.
Hostess also seeks approval to conduct going-out-of-business
sales, to implement an employee retention plan and to implement a management
incentive plan and authorization to take any and all actions needed to wind
down the business.
From the outset of its Chapter 11 cases until only
recently, Hostess says it was focused on, and pursued, the reorganization of
its businesses as economically viable.
Reorganization
The reorganization process depended on Hostess' ability
to make modifications to its collective bargaining agreements (CBAs) with its unions,
the company says. Also, according to demands made by its third-party
investors, Hostess needed to modify its multiemployer pension benefit
obligations. Without those modifications, Hostess would not be able to
attract investors willing to provide capital to the reorganized company, it
says.
Hostess on Jan. 25 moved to reject certain CBAs and
modify certain retiree benefit obligations pursuant to 11 U.S. Code
Sections 1113(c) and 1114(g). The two biggest unions involved were the
International Brotherhood of Teamsters (IBT) and the Bakery, Confectionery,
Tobacco and Grain Millers International Union (BCTGM).
Hostess says that it tried to negotiate with the unions
but that the BCTGM refused.
11 U.S. Code Section 1113
The Bankruptcy Court held a trial on Hostess' motions
pursuant to 11 U.S. Code Sections 1113 and 1114. The Bankruptcy Court
ruled that Hostess could not reject the CBAs but said it would grant the
motions as long as Hostess made certain changes to the relief requested.
The Bankruptcy Court's ruling made clear that Hostess' exit from the
multiemployer pension plans would very likely be necessary for it to
successfully emerge from bankruptcy.
Hostess then held discussions with the IBT, some of the
company's key lenders and the only potential outside
equity investor that had made a viable proposal, the company says. The
IBT indicated that its participation in any reorganization plan was conditioned
upon Hostess remaining in all of the IBT multiemployer pension plans.
Consequently, Hostess' only viable outside investor indicated that it was no
longer willing to invest in the debtors' businesses, the company says.
As a result, Hostess now seeks approval of a wind down
process in which it will sell those assets that can be operated on a going-concern
basis. Under the wind-down plan, buyers of the assets will assume as many
of the related administrative expenses and other claims as possible.
Hostess says it hopes to complete the wind down and the sale of substantially
all of its assets in approximately one year.
Excess Ingredients
Hostess says it estimates that it holds approximately
$29.3 million worth of excess ingredients and has less than $1 million in
generic packaging materials. It also says that the costs associated with
the wind down and disposition of each of its plants and their related assets
are approximately $17.58 million over the first 13 weeks of the wind down.
Hostess is represented by Corinne Ball, Heather Lennox,
Lisa Laukitis and Veerle Roovers of Jones Day in New York
and Ryan T. Routh of the Cleveland
office of Jones Day.
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