NEW YORK (Reuters) - Interstate Bakeries Corp. (NYSE:IBC - news), maker of Hostess Twinkies and Wonder Bread, filed for bankruptcy on Wednesday after struggling with more than $1.3 billion in debt and high costs.
The largest U.S. wholesale bakery also accepted the resignation of James Elsesser as chairman and chief executive, according to the Chapter 11 filing in the U.S. Bankruptcy Court for the Western District of Missouri in Kansas City.
The company named Leo Benatar as nonexecutive chairman and Antonio Alvarez as chief executive. Alvarez is managing director of the turnaround firm Alvarez & Marsal, which was hired to assist Interstate in restructuring.
"The company has a very high cost structure burdened by some unfavorable union contracts and ultimately this company has to get their costs in order to survive, and we just don't know if they can do that," said Janney Montgomery Scott analyst Mitchell Pinheiro, who has a "hold" rating on the shares.
Alvarez declined to discuss future strategy for the company, but said job cuts were inevitable.
"Which jobs, what form, how deep, I have no answers until we get in to roll up our sleeves and do it," Alvarez told Reuters in an interview.
Interstate, which also cited weak demand for bread products amid the popularity of low-carbohydrate diets, said it would seek court approval for a debtor-in-possession financing facility not to exceed $200 million and that it has received a $200 million financing commitment from JPMorgan Chase Bank.
Shares of Interstate plunged 62 percent in early morning trading on the Inet electronic brokerage network. The stock, which traded as high as $16.24 six months ago, fell to $1.25, down $2.02 from its close at $3.27 on Tuesday on the New York Stock Exchange (news - web sites). The shares were halted for pending news by the NYSE on Wednesday.
The company announced a reorganization plan in October 2003 to become more cost-conscious and focus on a more centralized, national plan. Interstate has about 32,000 employees across 54 bakeries, over 1,000 distribution centers and 1,200 thrift stores throughout the United States.
Earlier this month Interstate said its lenders had allowed additional borrowing on its revolving credit line, but the facility required it to file its fiscal 2004 financial statements by Sept. 26. The company's fiscal year ended May 29.
Interstate has delayed filing its annual report twice because of uncertainty over its upcoming financial results and whether it will be in compliance with certain debt covenants during its fiscal year 2005.
Kansas City, Missouri-based Interstate, along with other food companies, has been hurt by decreased demand for bread and pastries due to the popularity of low-carbohydrate diets.
Interstate has also grappled with its relationships with union workers, including strikes that brought shipments in the Northeastern United States to a halt in 2000.
"This is a business that has been in steady decline for the last eight years and they sometimes blame Atkins or blame other consumer trends," said Pinheiro. "But the bottom line is that this company hasn't innovated ... and when they have innovated they've generally been one step late."
Furthermore, the U.S. Securities and Exchange Commission (news - web sites) launched an accounting probe into the company in July, looking into how it set workers' compensation and other reserves.
The company said it expects day-to-day operations to continue as usual during the reorganization and has sought authority from bankruptcy court to pay employees and honor benefits without interruption or delay.
At least ten U.S. milling companies, large and small, are among Interstate's largest group of unsecured creditors and are owed nearly $30 million.
The group includes units of Archer Daniels Midland Co. (NYSE:ADM - news), ConAgra Foods Inc. (NYSE:CAG - news), Cargill, and General Mills Inc. (NYSE:GIS - news) as well as smaller millers, according to court documents.
Other large unsecured claims are held by suppliers of oils, dough strengtheners and other ingredients.
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