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Bankrupt Hostess Puts Off Liquidation Sale
in Favor of Mediation Talks

Bankruptcy judge urges the snack company to resolve issues with the BCTGM union before it began selling assets

Hostess Brands Inc., agreed in court on Nov. 19 to enter private mediation with lenders as a means of avoiding liquidation.

The maker of Twinkies snack cakes and Ho Hos, which filed for Chapter 11 bankruptcy in January, wants to sell its assets as part of a wind down plan, after employee strikes that started on Nov. 9 caused the company to lose between $7.5 million and $9.5 million, according to court documents.

Hostess filed the motion to wind down on Nov. 16, but at the court hearing, U.S Bankruptcy Judge Robert Drain of the Southern District of New York said there are “serious questions as to the logic behind the decision to strike.” He advised against the company's costly liquidation, and urged Hostess to meet with the leaders of the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union (BCTGM) in order to resolve issues.


Otherwise, the company’s wind down may cost Hostess 18,000 jobs.

FTI Consulting Inc. has determined Hostess’ property likely has a liquidation value of $200 million, its machinery and equipment has a liquidation value of around $12 million and that the intellectual property would be worth at least $100 million.

The company has proposed to pay for the process, which it estimates will cost $8.1 million for the first 13 weeks, with proceeds from its debtor-in-possession loan, which was approved by the court on Feb. 3.

Non senior management employees that stay on board during the wind down would receive a one-time “retention payment” of 25 percent of the amount of their compensation, from Nov. 16 through their duties under the wind down plan are complete, if the motion is approved by the bankruptcy court. This plan would cost Hostess $4.36 million.

Senior management employees would be provided with a similar retention payment of between 25 percent and 75 percent of their annual base compensation, which could cost Hostess up to $1.75 million.

The baker filed for bankruptcy protection on Jan. 11 in the U.S. Bankruptcy Court for the Southern District of New York in Manhattan. When the company sought bankruptcy protection, it operated 36 bakeries, 565 distribution centers, 5,500 delivery routes and 570 bakery outlet stores in the U.S.

In court papers, Hostess said that the most expensive part of its operating costs is its obligations under collective bargaining agreements that cover about 15,000 employees.

“Hostess simply cannot emerge as a viable competitor unless they are relieved of significant financial commitments and arcane work rules imposed by their collective bargaining agreements (CBAs),” the company says in court papers.

The debtor filed a motion on Jan. 25 to reject the CBAs and modify benefit obligations. The Bakery, Confectionery, Tobacco and Grain Workers International Union (BCT) ultimately refused to negotiate with the debtors. The International Brotherhood of Teamsters and Hostess attempted negotiations, which initially failed.

The court granted the motion to reject with regard to the BCT workers, but denied it in regard to the teamsters, court documents show.  During continued discussions, the teamsters indicated that their participation in a reorganization plan was conditioned upon Hostess sticking with their multi-employer pension plans, an agreement under their CBA, which caused Hostess’ potential outside investor to walk away, the debtor said in court papers.

Eventually, Hostess was able to modify CBAs with each of its unions. It started implementing those changes in October. Beginning on Nov. 7 it received strike notices from the BCT union, and then other unions. Thousands of workers formed picket lines outside of Hostess’ bakeries, according to court documents.

The company has been looking for a buyer, but hasn’t found one, it said in court papers.

Hostess, founded in 1930, was one of the largest wholesale bakers and bread distributors in the U.S. In addition to Twinkies, the company’s brands also include Wonder Bread, Butternut, Ding Dongs, Dolly Madison, Drake’s, Home Price, Merita and Nature’s Pride.


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