Twinkies Maker to End Four-year Bankruptcy

The maker of Twinkies and Wonder Bread is set to emerge from Chapter 11 more than four years after filing for bankruptcy.
Stephen TaubDecember 5, 2008

Interstate Bakeries Corp., the maker of Twinkies, says a federal Bankruptcy Court has approved its amended reorganization, and it plans to emerge from Chapter 11 within the next few weeks.

Interstate filed for bankruptcy in September 2004. It is best known for its Wonder, Hostess, Drake’s, and Dolly Madison brands.

Silver Point Finance LLC, Monarch Alternative Capital LP, and McDonnell Investment Management LLC, which hold 53 percent of Interstate’s prepetition secured debt, committed $339 million to a new secured term loan. In addition, Ripplewood Holdings will invest $130 million.

Under the terms of the revised plan, holders of unsecured claims and holders of existing common stock will receive no distribution. The company also says labor unions agreed to modifications to existing labor contracts that will lower the cost structure.

“Going forward, IBC will be well positioned upon emergence to compete in the marketplace with sufficient cash to fund operations, a renewed focus on driving innovation and reinvigorating our brands, and the flexibility to test, qualify, and implement new methods of distribution to meet the changing needs of our customers,” says CEO Craig Jung.

Interstate’s bankruptcy may have been lengthened as the economy itself began to slide. In October 2007, Interstate disclosed that the amount available under its DIP (debtor in possession) funding from JPMorgan Chase and other financial institutions was reduced by $10 million until the company complied with new disclosure covenants.

Interstate’s woes began in July 2004, two months before it declared bankruptcy, when the company announced that its audit committee had retained the law firm Skadden, Arps, Slate, Meagher & Flom to investigate how the company set its reserves for workers’ compensation and other purposes.

Later that month, Interstate announced that the Securities and Exchange Commission was conducting an informal inquiry. The audit committee eventually decided that a $40 million charge should be reflected in its second fiscal quarter of 2004.

In September 2004, after missing an extended deadline to file its annual report, Interstate filed for Chapter 11 to give itself more time to complete its restructuring. Meanwhile, chairman and CEO James Elsesser resigned.

In early 2005, the SEC upgraded its informal probe to a formal order of investigation related to the company’s manner for setting its reserves, especially those for workers’ compensation. In December 2006, Paul Yarick, Interstate’s former finance chief, settled civil charges with the SEC that he overstated earnings due to the way he accounted for workers’ compensation expenses. The company settled the same charges with the regulator.