Hostess Reenters Bankruptcy Less Than Three Years After Emerging From Its Last One

A blog about business and economics.
Jan. 10 2012 8:59 AM

Hostess Reenters Bankruptcy Less Than Three Years After Emerging From Its Last One


Hostess Brands, makers of such sins against baking as Wonder Bread, Twinkies, the entire Drake's line of snacks (for the Greater New Yorkers in the audience), and sundry other snack products is filing for bankruptcy. This is what the cool kids call a Chapter 22 bankruptcy, since Hostess was already under Chapter 11 protection from 2004-2009, and now they're back in Chapter 11 again. The immediate cause is that they owe something like $50 million to vendors for short-term goods and services delivered over the past month, so they need relief from their $860 million in outstanding debt to keep operating. More fundamentally, they've been hit by higher commodity prices (once again, more firms should hedge) and like most companies entering bankruptcy have high hopes of using the legal system to wriggle out of pension costs and other contractual obligations to unionized workers. This is all something to keep in mind next time you hear someone whining about strategic defaults on home mortgages—the way the big boys play the game is that you keep your promises until it's more economically advantageous not to.

An interesting angle here is that Hostess' core Wonder Bread business has suffered as consumers shift to more whole grain breads. They launched Nature's Pride to try to enter that market but it "hasn't sold well compared with some rivals amid a small presence on shelves, according to Mitchell Pinheiro, a Janney Montgomery Scott analyst." On a snobbish note, I've been excited to see French bakery chain Paul growing its presence in the United States, and have medium-term hopes that the entire gross supermarket bread segment may be in structural decline.


The interesting issue for Hostess moving forward is whether it can avoid total liquidation. A multi-brand conglomerate that's going through repeat bankruptcies would seem primed for dismemberment but in practice firms rage against the dying of the light and seek to live on whether or not that makes sense. The last time this enterprise was bankrupt, Mexico's amusingly named Grupo Bimbo, the world's largest bakery conglomerate, sought to purchase it so maybe they'll make another run. Bimbo already owns the Wonder Bread brand in Mexico as well as the Arnold bread brand here in the USA so it would in many ways it would still be a natural expansion of their business. Tragically, the linguistic issues continue to make it unlikely that we'll see Pan Bimbo branded as such outside niche marketplaces in heavily Mexican-American neighborhoods.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.



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