Twinkies maker Hostess plans to go out of business

IRVING, Texas, Fri Nov 16, 2012 – Hostess Brands Inc., the bankrupt maker of Twinkies and Wonder Bread, said it had sought court permission to go out of business after failing to get wage and benefit cuts from thousands of its striking bakery workers.

Hostess, which has about $2.5 billion in sales from a long list of iconic consumer brands of snack cakes and breads, said it had suspended operations at all of its 33 plants around the United States as it moves to start liquidating assets.

“We’ll be selling the brands and as much of the infrastructure as we can,” said company spokesman Lance Ignon. “There is value in the brands.”

Hostess said a strike by members of the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union that began last week had crippled its ability to produce and deliver products at several facilities, and it had no choice but to give up its effort to emerge intact from bankruptcy court.

The Irving, Texas-based company said the liquidation would mean that most of its 18,500 employees would lose their jobs.

Hostess had given employee a deadline to return to work on Thursday, but the union held firm, saying it had already given far more in concessions than workers could bear and that it would not bend further. Union officials blamed mismanagement for the company’s woes.

The company, which filed for bankruptcy in January for the second time since 2004, said it had filed a motion with U.S. Bankruptcy Judge Robert Drain in White Plains, New York, for permission to shut down and sell assets.

Hostess has 565 distribution centers and 570 bakery outlet stores, as well as the 33 bakeries. Its brands include Wonder, Nature’s Pride, Dolly Madison, Drake’s, Butternut, Home Pride and Merita, but it is probably best known for Twinkies – basically a cream-filled sponge cake.

“We do not have the financial resources to weather an extended nationwide strike,” CEO Gregory Rayburn said in a statement. “Hostess Brands will move promptly to lay off most of its 18,500-member workforce and focus on selling its assets to the highest bidders.”

Twinkie maker Hostess files reorganization plan

NEW YORK, Thu Oct 11, 2012 – Hostess Brands Inc., the bankrupt maker of Twinkies and Wonder Bread, filed a reorganization plan that includes wage cuts, reduction in health and welfare benefits and a freeze on pensions for at least two years.

Hostess is seeking to eliminate unsecured claims worth $2 billion to $2.5 billion under the plan and its equity owners may end up losing their investments, the company said in a court filing.

Hostess filed for Chapter 11 bankruptcy protection in January for the second time in less than three years as it struggled with crippling costs associated with its pension plans.

Union and non-union employees will take an 8 percent wage cut and will see only modest hikes in the coming years, the company said.

Health and welfare benefits will also face cuts under the reorganization plan, which needs to be approved by the court.

Hostess, which has 18,000 employees, received court permission earlier this month to impose a pay-cutting collective bargaining agreement on thousands of workers in a bakery union.

“Upon emergence, our union-represented employees will hold a 25 percent equity ownership, a $100 million interest-bearing note and have two seats on the board of directors,” said CEO Gregory Rayburn in a statement.

Bankrupt Eastman Kodak to cut more jobs

ROCHESTER, N.Y., Mon Sep 10, 2012– Bankrupt Eastman Kodak Co said it will cut 1,000 additional jobs by the end of this year and may cut more as it focuses on its commercial packaging and printing business.

Kodak, which invented the digital camera but had trouble adjusting to the digital age, was betting on an auction of its 1,100 patents to raise funds to repay money borrowed to finance its bankruptcy.

The company, which estimates its patents to be worth between $2.2 billion and $2.6 billion, received only sub-$500 million bids from investor groups, including Apple Inc and Google Inc, according to media reports.

Kodak has declined to comment on the sale and has delayed several times a bankruptcy court hearing during which it would reveal the details of the sale. The hearing on the sale was first set for August 20 and is now scheduled for Sept. 19.

If the sale falls flat, the company will need to find other ways to raise the money to pay creditors as it looks to exit bankruptcy by early 2013.

Kodak’s employee base has shrunk to about 17,100 at the end of last year from about 145,000 during the 1980s.

The company, which at one point employed more than 60,000 people in its hometown Rochester in upstate New York alone, did not disclose where the latest cuts would be made.

Battle over pension debt looms in San Bernardino bankruptcy

SAN BERNADINO, Calif., Thu Aug 30, 2012 – A high-stakes showdown pitting California’s public employee pension fund against Wall Street bond firms in bankrupt San Bernardino, California, could be further complicated by wildly disparate estimates of how much the city owes for its retirees.

San Bernardino, a city of about 210,000 near Los Angeles that filed for bankruptcy on Aug. 1, has listed the California Public Employees’ Retirement System (Calpers) as its largest creditor, with unfunded pension obligations totaling $143.3 million. But Calpers, in response to an inquiry from Reuters, pegged the debt at $319.5 million.

Experts say the dramatically different calculations of San Bernardino’s debt to Calpers will likely lead to litigation between the two entities, unless the city quickly agrees to the retirement system’s figure.

Calpers is the largest pension system in the U.S. and serves many California cities and counties, including the city of Stockton, which is also in bankruptcy. It has long argued that pension contributions cannot be touched even in a bankruptcy.

But firms that insure municipal bonds have strenuously objected to the idea that pension payments should come ahead of bond payments. They have already gone to court on the issue in Stockton and are expected to do the same in San Bernardino.

Court allows AMR to keep reins on bankruptcy until December

NEW YORK, Thu Jul 19, 2012 – American Airlines’ bankrupt parent AMR Corp. won court approval on Thursday to extend through Dec. 28 its exclusive right to present a plan to emerge from bankruptcy.
Judge Sean Lane granted the request, which was supported by AMR Corp.’s creditors’ committee, at a hearing in U.S. Bankruptcy Court in Manhattan. The current exclusivity period was to have run out in September.
AMR went bankrupt in November, citing an untenable labor cost structure.
The extension, which blocks creditors from pushing their own proposals on how AMR should restructure its debt, comes amid efforts by US Airways Group to merge with AMR and as the American Airlines parent prepares to review a range of strategic options including potential mergers while it is in bankruptcy.
Extending the exclusivity period does not necessarily kill the prospect of a merger in bankruptcy. At the behest of its creditors, AMR is considering merger partners as part of its restructuring, and the sides could still negotiate a consensual merger deal during bankruptcy.
AMR Chief Executive Tom Horton met with US Airways CEO Doug Parker early on Thursday, and assured his counterpart that AMR’s strategic review process would be “objective” and “fact-based” and there is no pre-determined outcome, according to people familiar with the matter.
Horton said during the meeting that the company has the obligation to pursue a plan that achieves the highest value for its financial creditors and will take the necessary time to run the process, the people said. They asked not to be named because the meeting was not public.

How to minimize the risk of fraudulent transfer claims when a vendor goes bankrupt

Alan Koschik, Co-Chair Commercial & Bankruptcy Practice Group, Brouse McDowell

Your parts distributor has always been reliable, offering you prices that its competitors couldn’t beat. It was a great deal for you — until the distributor went bankrupt.

You find another supplier and move on. But months — or years — later, you are called on by a bankruptcy trustee that has been appointed to oversee the bankruptcy case. The trustee says that the commodity you were purchasing was priced much lower than market rate. And because the trustee’s job is to collect funds in this case, he’s delivering you with a lawsuit to charge you with paying the difference between your below-market prices and the market rate for those years you purchased the commodity.

“Increasingly, customers of bankrupt businesses are being caught by surprise with fraudulent transfer claims asserted by bankruptcy trustees, who claim that they received a deal that was too favorable,” says Alan Koschik, co-chair of the Commercial & Bankruptcy Practice Group at Brouse McDowell. “These claims seek to renegotiate sale transactions long after they took place and create a new layer of uncertainty for certain business transactions.”

Smart Business spoke with Koschik about how businesses can help protect themselves against fraudulent transfer claims.

What are fraudulent transfers and when do they most commonly occur?

Technically, a fraudulent transfer claim is a transfer of property that is made with the intent to hinder or delay a creditor, or put property beyond their reach. In typical cases, a debtor might transfer his home or savings accounts to another person, an insider such as family or a spouse.

Fraudulent transfer claims most often arise in these familiar situations: transfers to insiders, as described; so-called upstream guaranties of a corporate parent’s debt by a business that ultimately cannot pay its creditors; and leveraged buyout transactions that cause an insolvent debtor to take on too much debt while permitting former equity holders to cash out of the business.

What is surprising about the new class of fraudulent transfer claims?

The new class of claims is distinctly different from these typical cases. They do not involve insider transactions, or extraordinary transactions. The claims are being charged against customers that have engaged in day-to-day business transactions, such as simply buying a commodity a company sells.

The customer isn’t trying to defraud or hinder anyone; it simply wants to buy the product and the seller (debtor) is offering an attractive price. However, bankruptcy trustees are seeking to change the price term of regular sales transactions long after they were completed by arguing that the value paid was less than ‘reasonably equivalent.’ Litigation ensues and usually involves an expensive debate about the sufficiency of the price.

What typical business transactions could lead to fraudulent transfer claims?

Sales of commodities are the most typical sales that can trigger a fraudulent transfer claim because a bankruptcy trustee has access to pricing information. Commodities are traded in a variety of exchanges, so trustees can look up idealized prices and make comparisons to prices actually paid to the debtor, the business that went bankrupt. Then, the trustee can calculate the difference and come up with a figure that he contends the customer should have paid.

The trustee justifies this based on commodities prices, charging that the debtor would have collected X more dollars if it had charged the reported market price. Commodities are more likely to be subject to a pricing comparison and lead to a fraudulent transfer claim than, say, accounting or legal services that are typically considered unique and less likely to have a non-negotiable ‘market price.’

In case of a lawsuit, what defenses can a business raise?

These new fraudulent transfer claims can be challenged with the argument that non-insider customers that negotiate at arm’s length set their own market price and should not bear the burden of guarantying the debtor-seller’s debts to its creditors. The customer shouldn’t have to help pay the vendor’s debt just because it was offered a lower price on a commodity during a regular business transaction.

A non-insider customer’s negotiated price should be considered to be ‘reasonably equivalent value’ by definition and the trustee’s claim should fail. However, the problem is that litigation is a lengthy, costly process, and customers frequently end up paying more in a settlement.

How can businesses protect themselves against fraudulent transfer claims?

If your business purchases commodities, dig deeper when vendors offer a surprisingly low price. Why is the price so low? How long has the company been in business? Are you aware of the financial state of the vendor’s business? Is it in trouble? How much lower than market rate is this vendor charging?

While it’s prudent in business to seek out vendors with competitive prices, if a deal seems too good to be true, it just might be. That said, if you move forward with a vendor offering a price you can’t resist, engage in a futures contract or swap agreement. These transactions are common in the commodity trade, and there are safe harbor defenses built into the bankruptcy code regarding futures trading.

It’s a good idea to consult with your attorney if you engage in commodities purchases to discuss pricing and the potential risks associated with fraudulent transfer claims. Then protect your business by making decisions not based solely on cost.

Alan Koschik is co-chair of the Commercial & Bankruptcy Practice Group at Brouse McDowell. Reach him at [email protected]

Insights Legal Affairs is brought to you by Brouse McDowell

Solyndra fails to garner turnkey bids for sale

WILMINGTON, Del. ― Solyndra LLC failed to attract any bids on Tuesday from buyers who could have restarted production, brought back some laid off staff and kept the bankrupt solar panel maker operating, according to a company adviser.

Solyndra, which owes more than $500 million to the U.S. government, has said a turnkey buyer is the best hope for getting the most money for the government and other creditors. However, no turnkey bids were submitted by a Tuesday deadline, said company adviser Eric Carlson of Imperial Capital LLC.

Court documents suggest that auctioneers who have already been retained will soon begin a piecemeal sale of the remaining production equipment and real estate.

Solyndra collapsed into bankruptcy in September, unable to compete with plummeting prices for solar panels. The company has been an ongoing political headache for President Barack Obama, who visited the company in 2010 to bolster his standing as a creator of renewable energy jobs.

Republican lawmakers are investigating possible favoritism in approving the government’s $535 million loan to the company, which counted among its investors George Kaiser, an Obama fundraiser.

A spokesman for Kaiser has said he did not discuss with the government the loan to Solyndra.

Separately, laid-off staff of Solyndra are fighting the company’s request to pay unnamed employees $500,000 in bonuses.

Solyndra asked for bankruptcy court approval for the payments earlier this month, saying the bonuses will ensure it can retain the 21 staff to complete tax filings and the sale of the company.

The bonus request has been opposed by the roughly 1,000 staffers that were laid off in August, when the company abruptly halted production.

The laid-off workers argued that until Solyndra discloses who is receiving the payments, the bonus request will appear “only to be in the best interests of senior management, the secured lenders and corporate insiders.”

Solyndra’s bankruptcy lawyer, Debra Grassgreen, did not return a call for comment.

Bankrupt panel maker Solyndra eyes fallback plan to sell machinery

WILMINGTON, Del. ― Solyndra LLC, the bankrupt solar panel maker that owes $500 million to the U.S. government, plans to auction off its machinery in January if it does not get bids for the entire business by an extended deadline.

Solyndra said last week that an initial deadline passed without any satisfactory bids to buy the entire company and restart production, damping hopes that some of its 1,000 idled workers might be rehired.

The company’s advisers have focused on selling the business as a whole as the best way to generate money to repay creditors.

Solyndra filed for bankruptcy in September as panel prices have plummeted due to a glut of supply. The company had a $535 million loan that was guaranteed by the Department of Energy.

The company’s failure has been an embarrassment for the White House after President Barack Obama visited the company last year. His administration has promoted clean energy as one way to create jobs.

Solyndra will file a motion as soon as Tuesday evening for permission to sell its equipment at an auction in mid-January, Debra Grassgreen, the company’s attorney, told a bankruptcy court hearing.

If a buyer for the entire business emerges, then the machinery auction would be unnecessary, Grassgreen said.

Solyndra’s advisers still hold out hope they may strike a deal to sell the business as a going concern. Todd Neilson, Solyndra’s chief restructuring officer, said after the hearing that Solyndra did receive bids for the business, but said he would not describe them as serious bids.

Solyndra’s headquarters were raided by the Federal Bureau of Investigation shortly after it filed for bankruptcy, and Congress is investigating if political connections played a role in approving the loan guarantee.

Neilson said he sensed that potential bidders were being driven away by politics as well as the depressed market for solar businesses.