The maker of Hostess Twinkies and Wonder Bread filed for bankruptcy protection and replaced its leadership Wednesday, blaming the nation’s infatuation with low-carb diets.
Interstate Bakeries Corp., the nation’s largest wholesale baker with its 57 plants and 33,000 workers, said deliveries of breads and sweet cakes would continue uninterrupted while it reorganizes its finances. The company said it had secured $200 million in debtor-in-possession financing from J.P. Morgan Chase Bank to begin that process.
In its Chapter 11 filing in the U.S. Bankruptcy Court for the Western District of Missouri in Kansas City, the company claimed it had $1.6 billion in assets and $1.3 billion in liabilities.After accepting the resignation of James Elsesser as chairman and chief executive, the company named Leo Benatar as non-executive chairman and Antonio Alvarez as chief executive.
Alvarez is the head of the New York-based turnaround management firm Alvarez & Marsal Inc., which handled the shutdown and liquidation of Chicago-based accounting firm Andersen and the bankruptcy of Warnaco Group Inc., the maker of Calvin Klein jeans and Speedo swimsuits, among others.
“These developments should have no impact on our dealings with you,” Alvarez said in a letter sent to 200,000 retailers, restaurants and other customers on Wednesday, adding that deliveries will continue “in the quantities that you require.”
In addition to the low-carb craze, the company, which has struggled financially for months, said high labor and energy costs and overcapacity in the industry had undermined its efforts to restructure outside of bankruptcy.
Although Alvarez declined to discuss his plans for paring capacity, he said, “It’s very rare in this country that anyone goes through Chapter 11 and is layoff free.”
Locally, Interstate operates a Wonder Bread bakery in Hodgkins and a Hostess Cake bakery in Schiller Park and also runs more than a dozen thrift stores in the Chicago area. It also has a bagel bakery in Milwaukee, Butternut bread bakeries in Peoria and Decatur and a combined Wonder-Hostess bakery in Davenport, Iowa.
Shares of the company, which traded as high as $16 this year, closed at $2.05, down $1.22 or 37 percent, on the New York Stock Exchange.
In a reorganization plan announced a year ago, the company announced the closure of five bakeries and layoffs of about 800 employees.
`Good company, good brands’
Though that wasn’t enough to stave off bankruptcy, some analysts think the company will survive.
“Fixing this company is not rocket science. It is a good company with good brands,” said Gary Hindes, managing director of Deltec Asset Management in New York.
“They need to cut capacity, sell some of their baking plants, cuts costs, renegotiate a lot of labor costs and deliver this company so we don’t end up with what I call a Chapter 22,” said Hindes, whose firm is exploring buying some of Interstate’s debt securities.
“White bread is dead, so to speak, and we have just seen the tip of the iceberg coming out of sugar-intensive companies. We’re seeing the same thing with Krispy Kreme and Coca Cola,” said Hindes, insisting that low-carb thinking is “not a fad diet.”
Declining sales
For more than a year, Interstate Bakeries has struggled with declining sales of its bread and sweets products, which both dropped 3.7 percent, a decline analysts blame on the Atkins and South Beach diets. Interstate’s sales were more deeply affected than the broader $6 billion bread industry, which saw its sales fall 1 percent, according to data from market research firm Information Resources Inc.
Last month the company missed a second deadline for filing its annual report, after requesting an extension in May because of a series of investigations, including one by the Securities and Exchange Commission into its reserve fund for worker’s compensation claims.
The report was due Aug. 27, but the company said it was not finished because of problems with a financial system it started using in June, uncertainty over results for the current quarter and questions about its ability to pay its loans this year.
Still, the turnaround experts hired to help Interstate reorganize insist the company and its famous brands–Hostess and Wonder–will be around for some time.
“The question is how many people will be buying Twinkies and Wonder white bread,” said Hindes, adding, “I think it will come out a lot leaner and profitable operation.”
Alvarez said Interstate “has some of the most recognizable and popular baked breads and sweet goods brands in the nation.”
“By filing for protection under Chapter 11 and obtaining [debtor in possession] financing, the company should have the liquidity, time and resources necessary to thoroughly identify, assess and address the issues that will enable this company to be successful in the future,” he said.
At least 10 milling companies are among Interstate’s largest unsecured creditors and are collectively owed nearly $30 million.
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A sour time for sweets
Creditors of Twinkie-maker Interstate Bakeries could lose millions of dollars as a result of the company’s Chapter 11 filing. Among its largest creditors:
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CREDITOR HEADQUARTERS CREDIT
GRAIN MILLERS
Cereal Food Processors Inc. Mission Woods, Kan. $8.6 million
Horizon Milling LLC Wayzata, Minn. $4.8 million
Archer Daniels Midland Co. Decatur, Ill. $4.1 million
Cargill Minneapolis $3.6 million
ConAgra Flour Milling Brookfield, Wis. $3.6 million
Bartlett Milling Co. Kansas City, Mo. $2.6 million
General Mills Inc. Scottsdale, Ariz. $1.5 million
Bay State Milling Co. Quincy, Mass. $1.0 million
Milner Milling Chattanooga, Tenn. $900,000
Roman Meal Milling Co. Tacoma, Wash. $800,000
Manildra Milling Corp. Mission, Kan. $800,000
OTHER BAKING INGREDIENT SUPPLIERS
American Yeast Corp. Memphis $1.7 million
Fleischmanns Yeast Fenton, Mo. $1.6 million
Bunge Foods Ft. Wayne, Ind. $1.5 million
Amalgamated Sugar Co. Ogden, Utah $900,000
Barry Callebaut USA St. Albans, Vt. $800,000
LOCAL SUPPLIERS
Pliant Corp. Schaumburg $2.0 million
Ed Miniat Inc. Homewood $1.4 million
Chicago Display Co. Melrose Park $1.3 million
Tate and Lyle PLC Decatur, Ill. $1.2 million
Source: U.S. Bankruptcy Court, Western District of Missouri
Chicago Tribune
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