- The Washington Times - Wednesday, January 11, 2012

Hostess Brands, having already filed once for Chapter 11 bankruptcy, is the latest company to commit serial bankruptcy - what jokesters call the dreaded “Chapter 22.”

After having emerged from that earlier bankruptcy in February 2009, the beloved maker of Twinkies, Wonder Bread and Ho Hos is headed back a second time, though the company says its new restructuring plan should allow it to continue producing its famous sweet treats without laying off employees.

“Hostess has some of our industry’s most powerful and resilient brands,” President and CEO Brian Driscoll said in a statement. “With generations of loyal consumers, numerous iconic products and a talented and experienced workforce, Hostess Brands has tremendous inherent strengths to build upon.”

Hostess blamed its most recent failure on unbearable pension and medical-benefit obligations, the economic downturn and increased competition. In its bankruptcy filing, Hostess estimated it owes more than $1 billion, but only has assets of between $500 million and $1 billion. It sells about $2 billion of its famous munchies annually.

The company owes money to tens of thousands of creditors, the biggest of which is the Bakery & Confectionery Union & Industry International Pension Fund. The economic downturn didn’t help things. Neither did increased competition from the likes of Flowers Foods, makers of Tastykake snacks.

“The company’s cost structure left it poorly positioned to respond to a worsening economy, increased competition and consolidation in the industry that has given other bakery companies major economies of scale and workforce advantages,” the company said.

Pending court approval, Hostess will receive $75 million in debtor-in-possession financing, a get-out-of-bankruptcy loan from Silver Point Capital and other lenders.

“With these changes, we can access capital to reinvest in our company again and begin to level the playing field with our competitors,” Mr. Driscoll said. “This company has tremendous potential if we can remove the barriers to success.”

Hostess’s previous owners filed for bankruptcy protection in 2004.

Bankruptcy double-dipping is becoming more common.In 2011, a total of 86 companies filed for bankruptcy, according to New Generation Research, which runs BankruptcyData.com. Companies like Composite Technology Corp. and Constar International Inc., both filed for repeat bankrupcies in 2011. Filene’s Basement filed for bankruptcy a third time in 2011, which makes it a “Chapter 33” case.

“Certainly, we’re seeing a lot of repeat bankruptcy cases,” said Kirk Burkley, partner at Bernstein Law Firm in Pittsburgh.

Many of these double-dippers, hoping to avoid bankruptcy in the first place, wait too late to file, he said. So they rush through the process and are not restructured in an effective way. That can lead to a second bankruptcy.

“One of the classic mistakes is waiting too long to file,” Mr. Burkley said. “Everyone thinks that just around the corner is the resolution to their problems, and they don’t want to file. Well, if you file too late, and you’ve run out of options and out of cash, it’s extremely difficult to reorganize. The more successful bankruptcies are the ones that are more thought out, more planned out.”

Founded in 1930, the Irving, Texas-based company is famous for brands like Butternut, Ding Dongs, Dolly Madison, Drake’s, Home Pride, Ho Hos, Merita and Nature’s Pride, as well as Twinkies and Wonder Bread.

It has about 19,000 employees, 36 bakeries, 565 distribution centers, and 570 bakery outlet stores in the U.S.

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