Hostess Brands Inc. Files Chapter 11 Bankruptcy, Will Remain In Operation!

Not such sweet news for the makers of the scrumptious Twinkies treats. Hostess Brands has filed Chapter 11 bankruptcy. Deets below:

Via WSJ:

Hostess Brands Inc. filed for Chapter 11 bankruptcy protection Wednesday, a move that marks the second significant court restructuring for the Twinkies and Wonder Bread baker in the past several years.

The privately held Irving, Texas, company said it would be able to maintain operations thanks to a $75 million financing commitment from a group of lenders.

Hostess, which employs roughly 19,000 people and carries more than $860 million in debt, has been facing a cash squeeze amid high labor costs and rising prices for sugar, flour and other ingredients, according to people familiar with the matter. Those costs together have proved higher than the company's roughly $2.5 billion in annual sales, creating losses and cash shortfalls, the people said.

The company, which filed the petition with the U.S. Bankruptcy Court in the Southern District of New York, said that it would continue operating its bakeries, outlet stores and distribution centers during the proceedings. Hostess operates in 49 states.

Hostess's filing, which The Wall Street Journal had reported was expected this week, marks what is known as a Chapter 22 proceeding in restructuring circles since the company had already sought bankruptcy protection once before. Previously called Interstate Bakeries Corp., Hostess slashed debt and costs during a stint in bankruptcy court that began in 2004. The company said Wednesday that previous efforts to implement changes, including the earlier Chapter 11 case completed in February 2009, were insufficient.

In a statement Wednesday, Hostess said the current cost structure "is not competitive, primarily due to legacy pension and medical benefit obligations and restrictive work rules."

President and Chief Executive Brian Driscoll said, "We remain hopeful that we can reach an agreement that will allow us to amend our labor contracts so that we can emerge from Chapter 11 as a highly competitive company that provides secure jobs for our employees."

Hostess owes more than $50 million to vendors, which have been demanding payments on shortened time frames because of Hostess's financial condition, one of the people said. Most of those goods and services were provided to Hostess within the past three weeks or so.

The company's private-equity owner, Ripplewood Holdings, invested $40 million in Hostess last year. Hedge funds Monarch Alternative Capital, Silver Point Capital and others loaned the company $20 million late last year.

Hostess has lined up around $75 million in so-called debtor-in-possession financing to keep the company afloat during bankruptcy proceedings. Monarch, Silver Point and some other investors have agreed to extend the bankruptcy financing, with an option for other senior creditors to provide parts of the loan.

Sales of Hostess's signature Twinkies have recently declined a bit while the overall bakery snacks category has been about flat. Nearly 36 million packages of Twinkies were sold in the year ended Dec. 25, down almost 2% from a year earlier, according to data from SymphonyIRI Group, a Chicago-based market-research firm. The data captures sales from supermarkets, drugstores, mass-market retailers and convenience stores, but exclude sales from Wal-Mart Stores Inc. and club stores.

Hostess also has had trouble attracting consumers who have migrated away from white bread to whole grains and other healthier foods. Hostess released a whole-grain bread called Nature's Pride, but it hasn't sold well compared with some rivals amid a small presence on shelves, according to Mitchell Pinheiro, a Janney Montgomery Scott analyst. Still, Nature's Pride's overall sales have ticked up, increasing 12.3% over the past year or so, said a Hostess spokesman.

Hostess also kept prices relatively high, making it harder to charge even more as costs for ingredients and fuel rose.In the 1960s and 1970s, the company grew by acquiring several other baking outfits across the U.S. By 1995, the company had changed its name to IBC, and purchased its largest rival, Continental Baking Co., for $330 million, maker of Wonder Bread.

Side Note: Luv twinkies and the chocolate cupcakes.