I.B.C. emerges from bankruptcy, will operate as a private company

by Morton Sosland
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KANSAS CITY — Nearly 4½ years after filing for Chapter 11 protection, Interstate Bakeries Corp. on Feb. 3 finally emerged from bankruptcy after successfully concluding its financial reorganization with the unanimous support of union locals and secured creditors.

The announcement came less than a week after a U.S. bankruptcy court judge approved changes to I.B.C.’s reorganization plan that included GE Capital cutting its lending total to $105 million from $125 million with other lenders agreeing to make up half of the $20 million reduction in financing. I.B.C. had faced a deadline of Feb. 9 to work with lenders and investors to exit bankruptcy or risk losing its financing.

With the reorganization, I.B.C. will tap into a $600 million financing plan that gives control of the company to buyout firm Ripplewood Holdings L.L.C. and the baker’s lenders and makes I.B.C. a private company. The company said its management team, led by Craig D. Jung as chief executive officer, will remain in place.

"Today marks a new beginning for Interstate Bakeries," Mr. Jung said. "We are now a stronger and more competitive company. With this period behind us, we can now unleash and empower 22,000 I.B.C. employees to better serve our consumers and customers, revitalize our core brands, and launch product innovation that will profitably grow our business."

Mr. Jung thanked I.B.C.’s employees for their sacrifices and union leaders for their commitment to saving jobs during the proceedings.

"Their actions made possible the financing required to execute a businessplan that will build competitive advantage and secure our company’s future," said Mr. Jung, who butted heads early and often with union officials on potential concessions after succeeding turnaround expert Antonio M. Alvarez as I.B.C. c.e.o. in February 2007. At one point in September 2007, Frank Hurt, president of the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union, said that while the union was willing to concede to certain cuts, I.B.C. "was asking for more than we believed our members would ever agree to."

Ultimately, though, the plan designed by Mr. Jung formed the basis for the current plan in which the company’s union employees agreed to concessions in pay, benefits and work rules in exchange for the opportunity to acquire a future stake in the company if certain financial targets are met.

Mr. Jung also thanked Ripplewood Holdings L.L.C., a private equity firm, for its significant investment in the company, as well as all the other companies who are participating in I.B.C.’s new financing, including GE Capital, J.P. Morgan, McDonnell Investment Management L.L.C., Monarch Alternative Capital L.P. and Silver Point Finance, L.L.C. For its part, Ripplewood made an investment of $130 million in exchange for 17% of I.B.C.’s common stock and $85.8 million in a fourth-lien note convertible into 33% of the common stock.

John Cahill and Greg Murphy, industrial partners of Ripplewood who will now serve on I.B.C.’s board of directors, said they were pleased to have closed the transaction.

"I.B.C. has outstanding brands in the major bread and snack cake categories that we believe best position the company for future success," Mr. Cahill and Mr. Murphy said.

In a statement prepared for Milling & Baking News, Mr. Jung extended his thanks to suppliers.

"We are grateful for the loyalty and commitment of our vendors who stood with I.B.C. through four long years of Chapter 11," he said. "We look forward to growing our business — and theirs — with a renewed focus on innovation and productivity."

While I.B.C.’s portfolio of bread and snack cakes carry strong brand recognition throughout the United States, the company’s struggles to emerge from bankruptcy have taken a toll on a category in which I.B.C. was the dominant leader.

At the time of its bankruptcy filing in September 2004, I.B.C. was the nation’s largest baking company with annual sales of $3.5 billion. The company operated 54 baking plants, 1,000 distribution centers and 9,100 delivery routes that shipped product to 200,000 outlets. In addition, the company’s Wonder brand was the top selling fresh branded bread in the United States.

The company subsequently undertook a review of its 10 profit centers, identifying areas in which it could improve operating efficiencies in production, distribution, marketing and sales. In a series of moves targeting the geographic profit centers, I.B.C. in 2005 closed nine baking plants, 200 distribution centers and 300 bakery outlets. In August 2007, I.B.C. closed four bread, bun and roll bakeries in Southern California and exited the bread market in the region.

By comparison, the company remains one of the nation’s largest wholesale bakers, but annual sales have slipped to $2.8 billion. The company now operates 41 baking plants, 600 distribution centers and 5,800 delivery routes. In addition, the company’s position among the ranking bread brands also has slipped. The company’s Wonder brand has gradually lost market share, and according to the most recent data from Information Resources, Inc. for the 52 weeks ended Dec. 28 now trails the Pepperidge Farm, Sara Lee, Nature’s Own, Oroweat and Arnold brands. In addition, the company’s Home Pride brand, which once ranked as the top selling wheat branded bread, has lost significant market share.

Since filing for bankruptcy in September 2004, I.B.C. regularly has filed monthly reports with the Securities and Exchange Commission detailing its sales and operating results. In those 55 four-week reporting periods, I.B.C. has sustained a loss 51 times for a cumulative operating loss of $331,627,643. The company never earned a profit more than once during any given year.

This article can also be found in the digital edition of Milling and Baking News, February 10, 2008, starting on Page 1. Click here to search that archive.

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