Hostess Brands Files Reorganization Plan, Paving Way for Emergence From Chapter 11

Bloomberg Law®, an integrated legal research and business intelligence solution, combines trusted news and analysis with cutting-edge technology to provide legal professionals tools to be...

By Alicia Biggs

Hostess Brands Inc. Oct. 10 filed a reorganization plan, paving the way for the company's emergence from Chapter 11 protection in January 2013 (In re Hostess Brands Inc., Bankr. S.D.N.Y., No. 12-22052, 10/10/12.

“It is a condition to the consummation of the plan that the debtors enter into a transaction or set of transactions that will generate sufficient funds to satisfy certain obligations to be paid under the plan and provide the debtors with the necessary cash infusion,” the filing stated.

A hearing will be held Nov. 29 in federal bankruptcy court on whether to approve the plan of reorganization.

“The filing of the Plan and Disclosure Statement is a major milestone for Hostess, our employees, suppliers and customers,” Gregory F. Rayburn, the company's chairman and chief executive officer, said in an Oct. 11 statement. “The Plan sets forth the blueprint for Hostess to emerge from bankruptcy. We will continue to work toward putting the pieces in place for that emergence so that we can thrive again as a robust competitor and continue to serve our loyal customers for years to come.”

Court Approves Implementation of Contracts
The restructuring plan comes just a week after Judge Robert Drain of the U.S. Bankruptcy Court for the Southern District of New York approved the company's motion to impose its “last and best” final contract offer on employees represented by the Bakery, Confectionery, Tobacco Workers and Grain Millers as well as those represented by five smaller unions, a company spokesman told BNA Oct. 10.

The judge Oct. 4 granted Hostess's motion under Bankruptcy Code Sections 1113 and 1114 to implement its final offer, which had been rejected by BCTGM members in mid-September (24 BBLR 1210, 9/20/12). International Brotherhood of Teamsters members voted Sept. 14 to accept a new labor agreement with the same contract modifications with Hostess.

Hostess spokesman Lance Ignon told BNA Oct. 15 the 8 percent wage reduction, as approved Oct. 4 by the judge, and further outlined in the plan of reorganization, will begin taking effect on a rolling basis during the next month.

Rayburn said Hostess is working to complete its restructuring and exit Chapter 11 in the next few months, provided that the plan is confirmed by the court.

“I'd like to thank our employees for their continued hard work and commitment,” Rayburn said. “Every single Hostess employee has made sacrifices to preserve jobs and improve the Company's financial strength. Upon emergence, our union-represented employees will hold 25 percent equity ownership, a $100 million interest-bearing note and have two seats on the Board of Directors on critical committees to ensure their voice is heard.”

Addressing Billions of Dollars in Liabilities
According to a summary of the reorganization plan, “addressing the billions of dollars of liabilities will require sacrifices at virtually all stakeholder levels.” The plan for reorganization also calls for:

  • nonunion and union employees to be subject to an immediate 8 percent wage cut in the first year of the five-year contract;

  • union employees to take a 17 percent reduction in health and welfare benefits;

  • the company to withdraw from unions' multiemployer pension plans (MEPPs) followed by a freeze on pension contributions for two years and reduced contributions thereafter;

  • nonunion employees wages to be subject to modest increases in the second through fifth years of the contract; and

  • contributions to the defined contribution plan for nonunion employees to continue to be suspended for nonunion employees for two years with reduced matching contributions thereafter.

In early January, Hostess filed for Chapter 11 protection in order to achieve long-term viability (24 BBLR 82, 1/19/12). It sought to reject its collective bargaining agreements with all of its unions, citing the need to achieve dramatic change to its labor agreements, with reductions in pension and medical obligations (24 BBLR 149, 2/2/12).

On May 4, Drain held that Hostess could reject some 79 unexpired collective bargaining agreements with the Bakery Workers but refused to terminate other BCTGM contracts that already had expired (24 BBLR 664, 5/17/12). Drain several days later denied Hostess's request to cancel all of its contracts with IBT, which represents some 7,500 workers (24 BBLR 660, 5/17/12).

IBT in mid-September approved proposed modifications to the terms of their contracts with Hostess, while BCTGM members rejected modifications.

According to the reorganization plan, the financial restructuring would reduce the secured debt and de-lever the balance sheet and permit the company to implement “key operational restructuring initiatives and capital expenditures.”

A spokesman for BCTGM could not be reached for comment Oct. 15.

Hostess currently employs some 18,300 people, of whom about 83 percent belong to one of 12 separate unions.

By Alicia Biggs

Full text of the reorganization plan is available at: /uploadedfiles/BNA_V2/Images/From_BNA_V1/News/Hostess_Brands__Inc__Docket_N_(1).pdf.

Request Bloomberg Law®