Another major US company has filed for bankruptcy in order to restructure its labor contracts. Last week Hostess Brands, the maker of Twinkies and other bakery goods, filed for Chapter 11 bankruptcy in federal court. Hostess CEO Brian J. Driscoll said that he was hopeful that the bankruptcy court would allow Hostess “to amend our labor contracts”; if that fails, then the company will ask the court to halt the existing agreements.
Hostess said that the high cost it pays for employee health care and pension benefits and restrictive union work rules caused the company to file for bankruptcy and wants to restructure its union contracts to reduce these costs.
Dennis Raymond, Director of the Teamsters Bakery and Laundry Conference, which represents 7,500 Hostess delivery drivers, said that the unions already made steep concessions to make Hostess a viable business.
“Our members made real sacrifices to help pull this company out of bankruptcy,” said Raymond, referring to a previous bankruptcy that Hostess filed in 2004. “It was not a failure of Hostess’ workers that led to this bankruptcy, it was the inability of management to execute their business plan.”
Raymond added that it’s now time for company management, equity holders, and lenders to make their share of sacrifices.
Frank Hurt, president of the Bakery, Confectionary, Tobacco Workers, and Grain Millers Union (BCTWGM), which represents 5,000 Hostess workers, said that the company is using workers as a convenient scapegoat to hide its own mismanagement.
“I find it deeply offensive and highly disingenuous for the company to claim that its financial woes are the result of its union contracts and pension and health benefits obligations,” Hurt said. “We contend that the company is in dire financial shape because of a string of failed business decisions made by a series of ineffective executives who have been running this company for the past decade.
“The BCTWGM has contracts with dozens of baking companies across the country including Bimbo Bakeries USA, the nation’s largest and most successful. The vast majority of those companies are doing just fine because they have experienced baking industry professionals managing them.”
Hostess was purchased in 2009 by Ripplefield Holdings, a private equity company from New York. Ripplefield as many private equity companies do tried to flip the company it purchased for a quick profit. In 2010 companies such as Hershey, Pepperidge Farms, and Blackstone, another private equity company, showed interest in the purchase, but decent worker health care and pension benefits turned out to be deal breakers.
As a result, the company sought to restructure its existing labor contracts and began bargaining with its unions for the desired cuts. The unions resisted the cuts but continued to bargain. In December, Hostess failed to make its payments to union pension funds.
Hurt said that the company has misrepresented the amount that it owes to its pension funds in order to make its case for bankruptcy. According to the bankruptcy filing, Hostess lists its largest unsecured creditor as the BCTWGM pension fund to which it owes $944 million. But as Hurt points out, this amount represents a withdrawal liability, the estimated amount owed in pension benefits over a 30-year period, not an actual debt owed to the pension fund.
The unions representing Hostess’ workers said that they would continue representing workers’ interests throughout the bankruptcy proceedings and would work with all stakeholders to find an equitable solution that will allow Hostess to emerge from bankruptcy as a business that works again.