Hostess Brands Inc., Irving, Texas, filed for Chapter 11 bankruptcy protection Wednesday, citing pension and medical benefit obligations as primary reasons for the move.
“The company's current cost structure is not competitive, primarily due to legacy pension and medical benefit obligations and restrictive work rules,” a Hostess news release said. “Those issues, combined with the economic downturn and a more difficult competitive landscape, created a worsening liquidity situation that prompted the need for a reorganization.”
In its filing with the U.S. Bankruptcy Court in New York, Hostess listed seven of its top eight largest unsecured creditors are union pension funds, headed by the $4.85 billion Bakery & Confectionary Union & Industry International Pension Fund, Kensington, Md., which it owes about $944.2 million, according to the filing. The second-largest creditor is the $19.8 billion Central States, Southeast and Southwest Areas Pension Plan, Rosemont, Ill., which is owed about $11.8 million.
Concurrent with the bankruptcy filing, Hostess said it received a $75 million commitment in debtor-in-possession financing from a group of its existing first-lien lenders, led by Silver Point Capital, according the news release.
Hostess has faced contributions of $130 million a year to 40 multiemployer pension plans, made up of participants from 12 separate unions, to keep up with pension obligations, according to a source close to Hostess.
“These pension plans burden the company with crippling costs,” said Hostess spokesman Lance Ignon, in a telephone interview.
Hostess listed assets at $500 million to $1 billion with liabilities exceeding $1 billion. Hostess' predecessor, Interstate Bakeries Corp., filed for Chapter 11 bankruptcy protection in 2004 and emerged from it in 2009.
Mr. Ignon said Hostess officials were not available for additional comment.