Chapter 11 Bankruptcy To Chapter 7 For Hostess Brands, Inc.

OH NO! Bankruptcy befalls the Twinkie Empire!

What is the deal with 2012!? First, the NHL can’t get their act together, and now, no more twinkies!? Yep, Snack Fans, the day has come; it’s finally happened – Hostess decided to close up shop. Due to a confluence of events, the nation’s unofficial bakery opted to “sell off assets to the highest bidder” in order to emerge intact from their Chapter 11 Bankruptcy – the company’s second in the past 10 years.

Hostess Inc. Facts & Figures

Despite generating over a billion dollars in revenue, Hostess Brand, Inc. (formerly Interstate Bakeries) is closing up shop in their 33 plants across the country. All of the corporations’ brands — Twinkies, Wonder Bread, Nature’s Pride, Dolly Madison, Drake’s, Butternut, Home Pride and Merita – will be affected.

In their statement, Hostess explained that in order to “emerge from bankruptcy intact” they would have to liquidate most of their assets.

Hostess Bankruptcy: Chapter 11 to Chapter 7

In brief, Chapter 11 Bankruptcy is available to companies (and a few individuals) with significant means. By filing Chapter 11, an entity is given time to re-organize their debts and pay them off without having to “go out of business.” A Chapter 7 Bankruptcy, on the other hand, is when a company or individual must sell off their assets in order to re-pay debts – or, simply put, liquidate.

Since Hostess’ projected future income will not satisfy their current Chapter 11 plan, they’ve decided to switch to a Chapter 7 plan. But they’ll need funds to do so – after all, it does cost money to dismantle a large corporation. As such, the “debtors-in-possession” lenders are freeing $75 million dollars, which will allow the company to operate while closing up shop and selling off assets.

Bankruptcy Blame: The Union Or The Management?

The Hostess bankruptcy involves another twist – a union strike. The Bakery, Confectionary, Tobacco Workers and Grain Millers International Union went on strike several weeks ago. In their announcement, Hostess cited the strike as a prevailing reason for the bankruptcy filing. Frank Hurt, the union president, insists, however, that longstanding poor management is primarily to blame. Interestingly, Hostess did reach an agreement with their largest union, the International Brotherhood of Teamsters.

According to executive estimates it will take one year to complete the liquidation; 18,500 will lose their jobs due to the Hostess bankruptcy. Approximately 3,500 will hang on to their jobs for the first few transition months, but after that, only about 200 staff will be needed to wrap up any lingering commitments, deals or administrative work.

At the time of this writing, it’s unclear whether or not Hostess will regroup after satisfying the conditions their Chapter 11 bankruptcy plan. In the meantime, let’s hope that in 2013 the NHL finds a commissioner that can skate, and the twinkie finds a home under another brand (Come on Sarah Lee!).

Hostess Brands Inc., U.S. Bankruptcy Court, Southern District of New York, No. 12-22052