I can't imagine a world with no Twinkies or Ding Dongs.
Hostess Brands, known for sweet treats like Twinkies and Ding Dongs, is back in Chapter 11.
The company went from cream filling to bankruptcy filing on Wednesday, just three years after emerging from an earlier restructuring.
The company has been struggling under the weight of an $860 million debt load and soaring expenses tied to its labor force. Hostess has up to 100,000 creditors, chief among them labor unions and pension funds that represent the company’s employees, according to the Chapter 11 petition filed in United States Bankruptcy Court in New York.
“We remain hopeful that we can reach an agreement that will allow us to amend our labor contracts so that we can emerge from Chapter 11 as a highly competitive company that provides secure jobs for our employees,” the company’s president and chief executive, Brian J. Driscoll, said in a statement. If the company is unable to reach a new labor deal, Hostess said it would ask the bankruptcy court to halt the existing agreement.
But those with sweet-tooths across the country need not fret. Hostess said its return to bankruptcy would not disrupt the company’s sale of baked goods. And executives are optimistic that, as it did last time around, Hostess will climb out of bankruptcy.
“With generations of loyal consumers, numerous iconic products and a talented and experienced work force, Hostess Brands has tremendous inherent strengths to build upon,” Mr. Driscoll said.
Hostess, a privately held company based in Irving, Tex., has built an expansive list of products over the decades, perhaps none more craved than Twinkies. In addition, the company makes Wonder and Nature’s Pride bread, Drake’s snack cakes and other well-known brands.
Twinkies, the cream-filled sponge cakes, have been a guilty pleasure for decades. Jimmy Dewar, the creator of the tasty treat, once remarked: “Twinkies was the best darn-tootin’ idea I ever had.”
But over the last several years, concerns grew that the baked goods might outlive the 82-year old company itself. In 2004, confronted with escalating labor costs and fluctuating prices of flour and other ingredients, the company filed for Chapter 11. Hostess, then known as the Interstate Bakeries Corporation, completed the restructuring process in February 2009, when Ripplewood Holdings, a New York private equity firm, seized control.
The company faces similar troubles today.
While it recorded net revenue of about $2.5 billion in the fiscal year ended May 28, 2011, it posted a $341 million net loss. Burdensome debt and labor costs, compounded by the lingering economic downturn, ultimately prompted the bankruptcy, according to court documents.
About 80 percent of the company’s 19,000 employees belong to a dozen separate unions, most notably the International Brotherhood of Teamsters, and the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union, Mr. Driscoll explained in an affidavit attached to the bankruptcy filing.
In particular, Hostess said pension and medical benefits, as well as “restrictive work rules,” were cutting into profit. The company paid about $52 million in workers’ compensation claims in the fiscal year ended May 28, 2011, the affidavit said.
Management sought cuts, but never sealed a deal with the unions. Competitors, Mr. Driscoll said, have lighter labor restrictions. For Hostess to achieve long-term viability, he said, it must “achieve dramatic change to their labor agreements.”
The unions have moved to blunt some of the contentions, calling on Hostess executives to make their own compensation concessions.
”Our members have already given at the well, and this time it will take sacrifices among all parties — management, lenders, equity holders and employees — to restructure Hostess into a viable enterprise that is well positioned for future growth,” Dennis Raymond, director of the Teamsters Bakery and Laundry Conference, said in the statement.
Hostess acknowledged that its business model was in need of a shake-up. Mr. Driscoll outlined plans to overhaul the company, with an eye toward ultimately breaking free of the bankruptcy process. The company, he said, aims to reduce its heavy debt load, obtain new capital investments to update its production and withdraw completely from multi-employer pension plans to “achieve relief from the crippling costs of these plans.”
”With these changes, we can access capital to reinvest in our company again and begin to level the playing field with our competitors,” Mr. Driscoll said in the company statement.
Perella Weinberg Partners is serving as a financial adviser to Hostess, while Jones Day is its law firm, according to the Chapter 11 filing.
In 2010, the company hired Goldman Sachs and JPMorgan Chase to explore a possible sale to Hershey, Pepperidge Farm and private equity companies, including Blackstone. But the potential suitors balked.
For now, Hostess has secured bankruptcy financing of up to $75 million from a group of lenders led by Silver Point Finance, according to the filing. That will allow the company to continue operating its bakeries and 570 bakery outlet stores — extending the already long shelf life of Twinkies.