Hostess Bankruptcy – What Happened?

America was devastated last week by the news of the Hostess Bankruptcy and the fact that their beloved Hostess snack treats such as Twinkies and Ding-Dongs would no longer be available for purchase. Empty counters were all you could find as every last sugar-coated treat was snatched up from gas stations and grocery stores. But how could this happen? How could an eighty-five-year-old American Company just all of a sudden go under?

Hostess filed for bankruptcy in January, its second trip to bankruptcy court since 2004. It previously emerged from restructuring in 2009 after a four-and-a-half year process. The company is now controlled by a group of investment firms, including hedge funds Silver Point Capital and Monarch Alternative Capital. While approval of the bankruptcy court is needed before Hostess can start selling its assets in liquidation, the company said production at all of its bakeries stopped effective Friday, and that stores will no longer receive products from Hostess Brands after the final round of deliveries of products that were made Thursday night.

Hostess suspended payments to the 42 multiemployer pension plans to which it contributes in August 2011. “For active employees, the circumstances differ for each MEPP, so (participants) should contact the administrator of the MEPP” in which they participate, Mr. Ignon said in an email, citing an employee Q&A document. He could not provide further information by press time. The company’s IBC Defined Benefit Plan had about $56 million in assets and $111 million in liabilities as of April 30, according to the PBGC.

In Hostess Brands Jan. 2012 bankruptcy filing, the company’s biggest unsecured creditor was The Confectionery Union & Industry International Pension Fund, a unionized employee plan with a near $944 million pension claim. The size of the near $1 billion union pension claim is likely, in part, because Hostess’s hedge fund owners stopped contributing to the company’s pension plan in August, as a result of bitter labor negotiations and deteriorating finances.

After filing for Chapter 11 bankruptcy protection last week, Hostess Brands will ask a bankruptcy judge to approve a plan that will allow it to pay $1.75 million in bonuses to 19 of its executives. Hostess’ decision to file for bankruptcy came amid disputes with its union workers, who threatened a strike that Hostess said imperiled the company’s finances. The unions are now protesting Hostess’ request for the bonuses, though they are unlikely to prevail, CNN Money reports:

Hostess Brands will ask a bankruptcy judge on Monday for approval to shut down the company and pay $1.75 million in executive bonuses.

Unions representing workers at the maker of Twinkies, Wonder Bread and Drake’s snacks are arguing against the bonuses. [...]

Under the plan, bonuses ranging from $7,400 to $130,500 will be paid to 19 executives. The company argues the bonuses are below market rates for such payments.

Even as it blamed unions for the bankruptcy and the 18,500 job losses that will ensue, Hostess already gave its executives pay raises earlier this year. The salary of the company’s chief executive tripled from $750,000 to roughly $2.5 million, and at least nine other executives received pay raises ranging from $90,000 to $400,000. Those raises came just months after Hostess originally filed for bankruptcy earlier this year.

One Response to “Hostess Bankruptcy – What Happened?”

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  1. rajib says:

    bankruptcy is a great offense …..

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