Hostess files plan of reorganization

by Eric Schroeder
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IRVING, TEXAS — Hostess Brands Inc. and its five subsidiaries have filed a Joint Plan of Reorganization and related Disclosure Statement with the U.S. Bankruptcy Court for the Southern District of New York.

The filings include detailed information regarding labor agreements, the treatment of claims and interests, the company’s business plan, and events leading up to and during Hostess’ Chapter 11 cases. The plan and disclosure statement remain subject to further modifications and approval by the U.S. Bankruptcy Court.

“The filing of the plan and disclosure statement is a major milestone for Hostess, our employees, suppliers and customers,” said Gregory F. Rayburn, chairman and chief executive officer. “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.”

As Mr. Rayburn said earlier this year, under the plan Hostess’ equity owners will receive nothing on account of their stock. The company’s largest equity owners, after making over $150 million in equity and debt investments into the company since 2009, including $40 million invested in 2011, will suffer “a complete loss,” the plan noted.

Holders of the Hostess’ fourth lien notes, with a principal balance of more than $230 million, also will receive nothing for of their claims. Meanwhile, holders of third lien term loan notes will receive much of their consideration in new third lien term loans, which are expected to be valued at a significant discount to their face amount.

According to the filing, in the July 2008 restructuring, Ripplewood Holdings L.L.C. invested $44.2 million for just under half of the reorganized company. Ripplewood also purchased $85.5 million in notes, secured by a fourth priority lean. Silver Point and affiliated entities received slightly more than 30% of Hostess common stock. Additionally Silver Point, in exchange for existing indebtedness, received a $137.1 term loan secured by a third priority lean and $85.5 million in notes, secured by a fourth priority lean.

Suppliers with older, unsecured claims still outstanding also will fare poorly in the plan.

“Many of the debtors’ suppliers hold prepetition general, unsecured claims, which are expected to receive no distribution in the Chapter 11 Cases,” the plan says. “In addition, significant vendors are also being asked to agree to accept $5 million worth of securities in the reorganized debtors in the form of new third lien term loans in lieu of the cash payment that they would otherwise be entitled to in respect of their prepetition claims entitled to priority under section 503(b)(9) of the Bankruptcy Code.”

The plan states that Hostess’ union employees will be subject to an immediate 8% wage cut in year one, with modest increases in the years to follow, as well as a 17% reduction in health and welfare benefits. Hostess also will withdraw from multi-employer pension plans (MEPPs) followed by a freeze on pension contributions for two years and reduced contributions thereafter.

Non-union employees’ wages also will be reduced by 8%, with only modest increases in the years to follow and the matching contribution provided under the defined contribution plan for non-union employees that was suspended in 2011 will continue to be suspended for two years with reduced matching contributions thereafter.

Hostess’ plan calls for withdrawal from the MEPPs, with later re-entry “only if certain conditions are satisfied.” The conditions include a two-year contribution holiday and significantly reduced contributions thereafter. The existing MEPPs will be required to have their post-petition and priority claims treated as unsecured claims.

“Demand for Hostess products has been very resilient, giving us a solid base to work from,” Mr. Rayburn said. “With a competitive cost structure and fresh capital at our disposal, we can begin to make the kinds of investments in our business that is essential to our future success.”

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

“I’d like to thank our employees for their continued hard work and commitment,” Mr. 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% 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.”

Hostess filed for Chapter 11 protection on Jan. 11, 2012.

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READER COMMENTS (1)

By Wonder Boy 10/11/2012 7:10:08 PM
its nice to no we own 25% of nothing