Tasty Baking in a financial squeeze with debt

The design of Tasty Baking Co.'s unadorned yet imposing $78 million bakery at the Philadelphia Navy Yard has a dual mission:

Continue to churn out the galaxy of baked goods that capture the Philadelphia taste buds and leave locals waxing nostalgic, and lift the company from a decades-long, slow-growth financial rut.

Right now, the design is only half working, and that's not nearly good enough.

The $100 million debt used to build and move into the new plant, coupled with a failure to gain all expected cost savings from the facility, has put Tasty into a financial squeeze that could force a sale of the firm - identified with Philadelphia like few others - three years from its 100th anniversary.

Tasty said Wednesday that it had skipped a debt payment due Jan. 1 and had until Jan. 14 to work out a deal with its banks, led by Citizens Bank of Pennsylvania, for additional relief. Otherwise, it will be in default.

The company also hired Philadelphia's Janney Montgomery Scott L.L.C. to explore the possibilities of refinancing debt due in 2012, raising money from investors, or selling the company - a wholly unpalatable option to the locally dominated board in the late 1990s, when the idea was last seriously explored.

Whatever happens, experts expect the bakery, paid for with the help of $31 million in publicly subsidized financing, to continue operating - even if it has a new owner.

Tasty's creditors - Bank of America, Sovereign Bank, and M&T Bank in addition to Citizens - play a key role in the future of the company, which took on a huge amount of debt in 2007, just before the economy tanked. The financing meant that everything needed to go right for Tastykake to be able to pay it back, given the thin profit from its business. That hasn't happened.

"We all agree Tasty Baking is an iconic Philadelphia brand. The bank group is in discussion with the company to review their proposals," Citizens spokeswoman Sylvia T. Bronner said.

Charles P. Pizzi, who was hired as Tasty's chief executive officer in 2002 after a career in government and 13 years as CEO of the Philadelphia Chamber of Commerce, declined to be interviewed. In a statement, he said: "There is no question in my mind that in order for Tasty Baking to thrive, the steps we took were the right ones."