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Hostess Bankruptcy: Twinkie Maker Files for Chapter 11 Protection

By Andrew Chow, Esq. on January 11, 2012 11:10 AM

An iconic American bakery brand, Hostess, is bankrupt again, and the company is blaming costly labor agreements for eating away at its bottom line.

Hostess Brands Inc. filed for Chapter 11 bankruptcy protection Wednesday, and retained BigLaw firm Jones Day as counsel for bankruptcy proceedings, The Wall Street Journal reports.

Rising pension and medical-benefits costs are the main reasons for Hostess' bankruptcy, the company said in court papers. To address those issues, Hostess plans to continue talks with 12 employee unions that represent 83% of the company's workers, the Journal reports.

"We remain hopeful that we can reach an agreement that will allow us to amend our labor contracts," Hostess President Brian Driscoll said in a statement.

Until then, Hostess has secured $75 million in bankruptcy financing from a group of investors so it can continue with day-to-day business, according to the Journal. A court has yet to approve the loan.

Hostess' bankruptcy filing is the second time the Twinkie and Wonder Bread maker has sought bankruptcy protection. The first time was in 2004, when the company was called Interstate Bakeries; it emerged from bankruptcy in 2009.

Because this is the second Hostess bankruptcy filing, the Journal notes it's called a "Chapter 22" proceeding -- an unofficial term for a company that's filed twice under Chapter 11.

In House counsel's role in a bankruptcy proceeding could vary widely from company to company. The GC could play a central role in deciding whether or not to head for Chapter 11, or simply help select the best bankruptcy firm and prepare the workforce.

Today, Hostess faces more than $860 million in debt, labor expenses, and rising ingredient costs, sources tell CBS News. Sales of Hostess products have basically been flat, and Twinkies sales dropped 2% last year, CBS reports. Hostess' bankruptcy affects 19,000 workers in 49 states.

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