University of Tennessee, Knoxville TRACE: Tennessee Research and Creative Exchange Chapter 11 Bankruptcy Case Studies College of Law Student Work Spring 2013 Hostess Brands, Inc. Bankruptcy Kathryn K. Ganier Frederick L. Conrad III Wendy G. Patrick Follow this and additional works at: https://trace.tennessee.edu/utk_studlawbankruptcy Part of the Bankruptcy Law Commons, and the Business Law, Public Responsibility, and Ethics Commons Recommended Citation Ganier, Kathryn K.; Conrad, Frederick L. III; and Patrick, Wendy G., "Hostess Brands, Inc. Bankruptcy" (2013). Chapter 11 Bankruptcy Case Studies. https://trace.tennessee.edu/utk_studlawbankruptcy/6 This Article is brought to you for free and open access by the College of Law Student Work at TRACE: Tennessee Research and Creative Exchange. It has been accepted for inclusion in Chapter 11 Bankruptcy Case Studies by an authorized administrator of TRACE: Tennessee Research and Creative Exchange. For more information, please contact [email protected]. Hostess Brands, Inc. Bankruptcy Workouts and Reorganizations – Professor Kuney Spring 2013 Kathryn K. Ganier*, Frederick L. Conrad III**, and Wendy G. Patrick*** * Kathryn K. Ganier is a student at the University of Tennessee College of Law and a class of 2013 candidate for a Juris Doctorate with a concentration in business transactions. She received her BA in Foreign Affairs from the University of Virginia in 2006 and before law school was a manager for strategic planning at Samsung North America. Ms. Ganier and the other authors thank Dawn McCarty at Bloomberg for answering an email and assisting us with access to certain documents that we could not locate without her. ** Frederick L. Conrad III is a student at the University of Tennessee College of Law and a 2013 candidate for a Juris Doctor with a concentration in advocacy and dispute resolution. He received his BA in Economics & History from Vanderbilt University in 2010 and has accepted a position as an associate in the Business Litigation Practice Group in the Nashville office of Stites & Harbison PLLC. *** Wendy G. Patrick is a student at the University of Tennessee College of Law and a 2013 candidate for a Juris Doctor. 1 Table of Contents Part I: The 2004 Bankruptcy ....................................................................................................... 5 Chapter 1: Introduction ............................................................................................................... 5 Hostess Timeline ..................................................................................................................... 7 History of Brands .................................................................................................................... 9 The Best Thing Since Sliced Bread .................................................................................. 10 The Cake Business ................................................................................................................ 11 Twinkies ............................................................................................................................ 11 Drake’s Cakes ................................................................................................................... 11 Baking Inefficiencies ........................................................................................................ 11 Chapter 2: The First Chapter 11 Bankruptcy (2004-2009) ....................................................... 12 Filing for Bankruptcy ............................................................................................................ 12 20 Largest Unsecured Creditors ............................................................................................ 13 First Day Motions and Other Filings .................................................................................... 13 Why IBC Filed for Chapter 11 in 2004 ................................................................................ 15 A Target for Purchase ........................................................................................................... 17 The Reorganization Plan ....................................................................................................... 18 Part II: The 2012, Second Bankruptcy ..................................................................................... 22 Chapter 3: Lead up to “Chapter 22” Bankruptcy Filing ........................................................... 22 Poor Management Decisions ................................................................................................ 22 Weak Sales, Increased Costs, Poor Financial Performance .................................................. 24 The Debt Burden ................................................................................................................... 26 Unions and Pensions ............................................................................................................. 26 Chapter 4: The Players in the Second Bankruptcy ................................................................... 28 The Debtor ............................................................................................................................ 28 Court and Administrators ...................................................................................................... 28 Attorneys and Firms .............................................................................................................. 29 Unions ................................................................................................................................... 29 Hostess Management and Investors ...................................................................................... 30 Management ...................................................................................................................... 30 Board Members ................................................................................................................. 31 2 Investors ............................................................................................................................ 31 Creditor Committees ............................................................................................................. 33 Official Committee of Unsecured Creditors of Hostess Brands, Inc., et. al ..................... 33 Official Committee of Non-Union Retirees of Hostess Brands, Inc. ............................... 33 Official Committee of Retired Employees of Hostess Brands, Inc. and its Debtor Affiliates ........................................................................................................................... 33 Major Creditors ..................................................................................................................... 33 Competitors and Potential Buyers ........................................................................................ 35 Other Characters ................................................................................................................... 36 Chapter 5: The Start of the Second Bankruptcy, “Bankruptcy II” and First Day Motions ..... 37 The Voluntary Petition – January 11, 2012 .......................................................................... 37 Chapter 6: The Reorganization Plan ......................................................................................... 44 Chapter 7: Strike ...................................................................................................................... 47 Chapter 8: Liquidation ............................................................................................................. 54 Pre-Liquidation Emergency Hearing and the Confectionary and Baker’s Union Continuing Strike. .................................................................................................................................... 55 Emergency Liquidation Motion Approved ........................................................................... 57 Emergency Liquidation Plan and Motion: Substantive Requests and Provision ............. 58 Wind Down Plan ................................................................................................................... 58 Financing and Implementing the Wind Down Plan .......................................................... 60 Exculpation and Indemnification for Protected Persons ................................................... 62 Objections to Motion to Wind Down ................................................................................ 62 IUOE Objection to the Wind Down Plan ............................................................................. 63 Mark Popovich Objection to the Wind Down Plan .......................................................... 65 Motion Granted to Wind Down Business. Interim Order Pursuant to Sections 105, 363, 365 ............................................................................................................................................... 65 Rejection of Chapter 7 Filings .............................................................................................. 66 Chapter 9: Section 363 Sales .................................................................................................... 70 What is a Stalking Horse? ................................................................................................. 71 Topping Fees and Break Up Fees ....................................................................................