Hostess to File for Bankruptcy Protection, What Will Happen To The Twinkie?

HOSTESS Brands, the maker of Twinkies, will be filing for Chapter 11 bankruptcy protection as soon as this week, sources close to the company have indicated. This will be the second such filing over the past several years.

Hostess Brands is a privately-held company which employs roughly 19,000 people and is carrying more than $860 million in debt. The Irving, Texas based company has been facing difficult times which it blames on high labor costs and rising commodity prices. The costs of doing business are higher than the $2.5 billion dollars the company brings in in yearly sales, creating an operating deficit.

Do to the financial state of the company, vendors have been demanding quicker repayments of the more than $50 million dollars in debts the company has outstanding. This has also exacerbated the company’s problems.

Hostess had gone into bankruptcy proceedings in 2004 and after 3 years of work was able to slash costs and get going again. The company has struggled since then.

Hostess has currently lined up $75 million dollars in cash loans to get the company through bankruptcy.

Once Hostess enters bankruptcy court it will try to renegotiate labor contracts with the several unions that represent its workers. If those negotiations fail they may try to void the contracts completely as is allowed through the court.

Hostess has struggled as the snack cake market has left little room for growth and the white bread market has declined due to increased numbers of people moving to whole grain varieties. Hostess has entered these markets but has not seen significant growth from that sector as of yet.

Hostess is trying to avoid liquidation after filing for bankruptcy for the second time in less than seven years. Other large companies like Polaroid have been liquidated for going back to court for protection.

The real question is, what will be the state of the Twinkie if Hostess goes under?