Judge pieces together Hostess contract, pension proposal

Neither Hostess Brands Inc. nor the Teamsters union emerged victorious from the trial on April 18 and 19 where the Wonder bread maker was seeking court permission to break existing labor contracts and modify retirement benefits.

In a lengthy opinion delivered orally in the early evening on May 14, U.S. Bankruptcy Judge Robert Drain cobbled together elements from both sides’ proposals into a new contract and pension proposal he could accept.

The main sticking point was the company’s demand for withdrawal from union-sponsored multiemployer pension plans facing insolvency in future years. Drain, in White Plains, N.Y., agreed with Hostess that complete withdrawal from the three weakest multiemployer plans is essential for Hostess to attract new capital necessary for emerging from reorganization.

When it came to how Hostess should accomplish labor cost savings, Drain came down on the side of the union’s proposal.

Drain sided with Hostess in ruling that the company should withdraw from all multiemployer plans and re-enter as a new employer only those that are economically sound. Workers in the unsound pension funds would be moved to stable ones.

The judge took sides with the Teamsters on another aspect of the pension proposal. While Hostess wanted all new hires to be in a company-sponsored plan, Drain said it was crucial for the health of the union pension plans that they cover new workers.

Drain turned down a proposal by the Teamsters that they have control over increases in salaries for non-union and management workers. On the other hand, he said it was reasonable for labor to have a representative on the board of directors and for the unions to have claims resulting from revisions in their contracts.

Unless the two sides can’t come to terms on a contract, the trial is over. If they can’t agree, Drain said he would hold a hearing on short notice to consider approving a request by the company to impose new terms of employment along the lines he found acceptable.

Originally, the bakery workers’ union was to have been in the April trial. The bakery union, Hostess’ second-largest, decided not to oppose, and its existing contract was rejected this month. A trial to deal with other unions is scheduled for later this month.

Hostess filed under Chapter 11 for a second time in January, listing assets of $982 million against liabilities totaling $1.43 billion. Brand names included Wonder, Hostess, Merita, Dolly Madison, Drake’s and Butternut. Hostess has 36 bakeries, 565 distribution centers and 570 outlets.

During the prior bankruptcy, Irving, Texas-based Hostess had 41 bakeries, 600 distribution centers and 730 thrift stores.

The new case is In re Hostess Brands Inc., 12-22052, U.S. Bankruptcy Court, Southern District of New York (White Plains).

The prior bankruptcy was In re Interstate Bakeries Corp., 04-45814, U.S. Bankruptcy Court, Western District of Missouri (Kansas City).