Twinkie Maker Hostess Seeks Liquidation as Deal with Unions Breaks Down

Twinkie Maker Hostess Seeks Liquidation as Deal with Unions Breaks Down

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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Comments

GaryArmstrong
  • 11-27-2012

I just recently wrote a blog about this. It's amazing how many people were talking about this online.