PhillyDeals: Hostess says it hopes filing will lift financial weights, attract investors

Hostess has a bakery and three truck terminals in the Phila. region.
Hostess has a bakery and three truck terminals in the Phila. region. (MARK LENNIHAN / Associated Press)
Posted: January 12, 2012

Hostess Brands, the bakery chain that sold $2.5 billion worth of Wonder Bread, Twinkies, Devil Dogs, Ding Dongs, and other durable breads and fatty snacks last year, hopes its new bankruptcy filing in New York will let it escape $860 million it owes pension plans for retired truck drivers and other creditors, chief executive Brian J. Driscoll said in court papers. (Read his affidavit here)

Hostess, whose far-flung operations include a bakery on Grant Avenue in Northeast Philadelphia and truck terminals in Valley Forge, Wilmington, and Atlantic City, says its lead debtor, Greenwich, Conn., buyout firm Silver Point Capital L.P., has agreed to lend it money so it can keep the bakeries open while Hostess tries to get a judge to impose work-rule, pension, and medical-care concessions it failed to win in union negotiations.

Hostess hopes lower costs will help it attract new investors.

Silver Point, founded by former Goldman Sachs partners Edward Mule and Robert J. O'Shea, didn't respond to questions about how much Silver Point or its partners put into, and took out of, Hostess, before its latest bankruptcy filing. Hostess also filed for protection in 2004.

Hostess' costs - including old debt from acquisitions as well as the Teamster pensions - "are not competitive with Little Debbie, Bimbo, J&J Snack Foods (of Pennsauken), Flowers Foods, and other newer companies with a lot of capital and not as much debt," said Robert Costello, head of $50 million-plus Costello Asset Management Inc. in Huntingdon Valley, which owns "a small position" in Flowers stock.

"It's not that they are paying the guys that much," Costello told me. But pension and health-care costs for retired workers are a growing burden, while rivals' "new facilities are much more efficient," leaving them more money for marketing and grabbing market share from Hostess.

Hostess employs 19,000 bakers, drivers, and support workers. That includes 160 Teamsters union members at its Northeast Philadelphia Wonder Bread bakery and the suburban depots, Bob Ryder, president of Teamsters Local 463, told me. He said the company had cut nearly half its former workforce in recent years.

"They're five months in arrears with their pension contribution," Ryder said of Hostess. "So far, we've been treating it as a delinquent contribution, but other [Hostess pension] funds have filed complaints" with the U.S. Department of Labor.

Employers whose workforce is shrinking while the number of their retirees grows often have to pay a rising proportion of their sales and profits to cover promised pensions, especially when investment markets are weak and fail to boost pension-fund assets.

The funds are insured by the federal Pension Benefit Guaranty Corp., which typically keeps checks from troubled plans flowing to elderly retirees, but also "freezes" benefits so current workers don't accrue higher payments. Attempts by Sen. Bob Casey (D., Pa.) and others in Congress to subsidize or restructure aging pension funds have been killed by antiunion business lobbyists and their Republican allies.

Hostess' bankruptcy, which comes as fewer Americans are buying fatty snacks, follows last year's sale of historically nonunion Tasty Baking Co., maker of Tastykakes, to Flowers, as it was running out of cash, and the conversion of wage-earning drivers to independent contractors at Amoroso's and other bakeries seeking to cut benefit costs and restore sales.

"It's getting rougher," Ryder told me.

Hiring

Xfinity Live, the restaurant and retail development that Cordish Cos. and Comcast- Spectacor are building at the former Spectrum site at Broad and Pattison in South Philly, plans a job fair Sunday, 10 a.m. to 2 p.m., at the neighboring Wells Fargo Center, to fill 750 jobs for managers, salespeople, and bar and restaurant workers.

Comcast-Spectacor boss Peter Luukko, in a statement, said applicants should bring several resum├ęs and references, and be ready to "interview and audition" with managers from branches of Original Philadelphia Cheesesteak Co., Chickie's & Pete's, and Old Original Nick's Roast Beef; also the complex's flagship Spectrum Grill steak house restaurant, the Flyers-themed Broad Street Bullies Pub, the NBC Sports Arena with its 32-foot (diagonal) TV screen showing Comcast's NBC Sports programs, the Professional Bull Riders Association's Western-themed PBR Bar & Grill, and Victory Beer Hall.


Contact columnist Joseph N. DiStefano at 215-854-5194, JoeD@phillynews.com or @PhillyJoeD on Twitter.

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