Twinkies maker Hostess files for bankruptcy

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BLUE_KAWI

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Another sign that this depression is getting worse....


http://www.theglobeandmail.com/glob...les-for-bankruptcy-protection/article2298572/

Hostess Brands Inc., the maker of Twinkies and Wonder Bread, is seeking bankruptcy protection, blaming its pension and medical benefits obligations, increased competition and tough economic conditions.

The Chapter 11 filing on Wednesday comes just two years after a predecessor company emerged from bankruptcy proceedings.

That company, called Interstate Bakeries and based in Kansas City, Mo., filed for bankruptcy protection in 2004. It emerged in February, 2009.

But Hostess said Wednesday that its previous efforts to produce incremental change, including the prior Chapter 11 case, were insufficient.

In its filing with the U.S. Bankruptcy Court for the Southern District of New York, Hostess disclosed that its biggest unsecured creditor is the Bakery & Confectionery Union & Industry International Pension Fund, which it owes approximately $944.2-million.

Its second-largest unsecured creditor, Central States, Southeast and Southwest Areas Pension Plan is owed far less, about $11.8-million.

Hostess president and chief executive officer Brian Driscoll said in a statement that the company is working to reach a consensual agreement with its unions to modify its collective bargaining agreements. The company said that its current cost structure is not competitive mostly because of legacy pension and medical benefit obligations and restrictive work rules.

Hostess said those issues, coupled with more competition and the difficult economic conditions, created a worsening liquidity situation that drove its need to reorganize.

In its bankruptcy filing, Hostess also listed its estimated assets between $500-million and $1-billion and its estimated liabilities at more than $1-billion.

The privately held Irving, Tex.-based company said that it will be able to maintain routine operations thanks to a $75-million financing commitment from a group of lenders led by Silver Point Capital LP.

Reports had surfaced earlier in the week that the bakery company was planning to make such a filing.

Hostess said that it will look to restructure into a “strong, competitive” company. It will continue to run bakeries, outlet stores and distribution centres and deliver its goods during the process. The company said that it does not anticipate any disruptions in the making of or delivery of its breads or cake products and reassured that its popular brands, which also include Drake’s, Ding Dongs and Ho Hos, will still be available.

Hostess said that it is looking to “create a sustainable cost structure with competitive employee benefit plans.” It also hopes to modernize its systems, fleets and plants to keep pace with customer needs.

“This company has tremendous potential if we can remove the barriers to success,” Mr. Driscoll said.

Hostess has about 19,000 employees and operates in 49 states. Annual sales are about $2-billion, according to the company’s website.
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Sorry but my first thought is yippy one less crap food maker out there. Mean I know but still.
 
But what will we do in a zombie apocalypse?????
 
Feel bad for those people who will probably lose out on their pensions due to this. Or at the very least have the standard of living they expected on retirement drastically reduced from where it is today.
 
Myztyk said:
Feel bad for those people who will probably lose out on their pensions due to this. Or at the very least have the standard of living they expected on retirement drastically reduced from where it is today.
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they can take severence in the form of twinkies... their shelf life is 10 years.

or for those who prefer.. snowballs.
 
Actually, junk food places usually do well in recessions/depressions. I suspect this failure is due more to poor management and union excess. They'll just use this as a renegotiation tactic to make their pay structure come more into line with what should be expected these days.
 
rutakin said:
they can take severence in the form of twinkies... their shelf life is 10 years.

or for those who prefer.. snowballs.
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Funny, but not really.

invictus43 said:
Actually, junk food places usually do well in recessions/depressions. I suspect this failure is due more to poor management and union excess. They'll just use this as a renegotiation tactic to make their pay structure come more into line with what should be expected these days.
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The business commentary is their pension commitment is crippling them.
 
Myztyk said:
The business commentary is their pension commitment is crippling them.
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As I said, poor management and union excess. They'll use this to decrease the "pay", which includes pension and benefit costs.
 
Almost the entirety of their debt is owed to the pension fund. (nearly a billion)

So these guys haven't been paying their pension obligations and have been writing IOUs for some time now.
 
OpenGambit said:
Almost the entirety of their debt is owed to the pension fund. (nearly a billion)

So these guys haven't been paying their pension obligations and have been writing IOUs for some time now.
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Yup..but what's the root cause of that? I think they do just fine as far as sales etc goes. Like I say, in general, these types of companies tend to do alright in tough economic times. I think they've been forced to pay more and more in terms of employee costs and finally they need to rebalance that equation. Poor management..

Or they could have just scored the money into their personal accounts.. :-)

It must really suck to be a senior, plan your retirement around you pension (thinking it's secure..) and then getting screwed out of that money. Kinda hard to go back to work at age 80..
 
No idea of the root cause. It would be interesting to see their shareholder distributions over the past few decades.
 
OpenGambit said:
No idea of the root cause. It would be interesting to see their shareholder distributions over the past few decades.
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Privately-held company. Food industry is generally not a high-margin business. Bankruptcy wipes out the common shareholders anyway. Not saying the shareholders never got any dividends, but I doubt if it was enough to have made a difference with the sort of pension obligation that they have.

Company pensions funded through the company itself or paid by the company and administered by the union (which seems to be the case here), as opposed to being operated independently by an insurance or investment company, don't seem like a good idea. Too vulnerable to things going wrong, either with the company or with the union.

Just wait, because there is another shakeout on the horizon for ex auto workers. The "detroit 3" have divested themselves of their pension obligations and handed it off to the UAW, but the UAW has a fraction as many dues-paying members as it did in years past, has practically no chance of organizing any of the import brands, owns shares in the very same companies that it represents but the value of these shares nowhere near offsets the pension obligation (and this places them in a rather interesting position, too), but is trying to operate as it did in years past. I would say that there is a significant possibility of the UAW going bankrupt because of this ... a situation that I have a hard time imagining that they could ever recover from. Bye-bye, pensions, for ex auto workers in USA.

Too-rich pension promises come back to bite later on. It's best when planning one's retirement that any company pension plan will be worth nothing.
 
I know its privately held. But there are clawback laws regarding overpayment of dividends, especially when a company goes bankrupt.

Its also possible that the Company didn't keep a separate account for its Pension and just mixxed the funds into its general pool, this also happens a lot when companies aren't doing well.

the margins in the food business isn't really relevant to the cause of this particular company's banruptcy.

From the facts as present it could be a number of other reasons.
mismanagement
maknig pension obligations they can't keep
paying dividends when they shouldn't
Borrowing from pension money to pay operating costs
competition
 
An overly generous pension can have a back lash. A friend with a 70% pension says his income is so high that his RRSPs are almost useless due to the tax rate. 70% + CPP + OAS comes close to 100% of pre retirement income for some. Some co-workers aren't putting into RRSPs for that reason. However if the pension cow dies they don't have anything.

Pension money doesn't sit on a shelf. It's invested and that hasn't been a gold mine recently.
 
I would still contribute to RRSPs as it is a tax deferral.
 
^ That's a good article, and sums up the whole situation rather nicely.

I would also suggest contributing to an RRSP regardless of whether you have a company pension or not.
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