Hostess granted court approval for global settlement with eight unions

By Jim Witters

Wilmington, Del., Nov. 1 - Hostess Brands Inc. received approval for a global settlement with eight unions representing its workers, saving the company from having to liquidate its assets and preventing the loss of 18,300 union jobs, according to documents filed Nov. 1 with the U.S. Bankruptcy Court for the Southern District of New York.

Hostess says the modifications to the collective bargaining agreements will save the company more than $171 million per year by 2014.

The union settlement agreements modify the wage, health and welfare and pension obligations, as well as many of the work rules governing union employees.

The agreements also require concessions from the debtors' prepetition lenders, administrative and priority claimants and other creditors.

Under the terms of the agreement, the unions gain a voice in the future of the reorganized debtors through representation on the board of directors.

The company said the settlements establish a capital structure for a viable business, including $100 million in new third-lien loans and the distribution to union employees of 25% of the equity of the reorganized company.

Hostess' goals in modifying the collective bargaining agreements were to reduce the risks associated with the company's participation in multi-employer pension plans; to standardize the level of health and welfare benefits offered to union employees; and to eliminate work rules that created operational inefficiency.

Global settlement terms

Under the terms of the agreement:

• Effective the first Sunday after the union settlement agreements are ratified, total wage compensation for all employees, including management, will be reduced by 8% in the first year; 5% from the baseline in the second, third and fourth years; and 4% from the baseline in the fifth year;

• Employees covered under a debtor-administered health and welfare plan will be covered under a new plan that reflects a 17% savings to the debtor. The new plan does not include retiree coverage. The agreements with the OPEIU, the UAW and the USW provide that the plans will exclude coverage for future retirees;

• The debtors will work with the unions to provide for re-entry into the union multi-employer pension plans to which it had been contributing before August 2011. Hostess will make no contributions through Dec. 31, 2014.

Effective Jan. 1, 2015, the company's contribution will be 25% of the collective bargaining agreements' contribution rates in effect in July 2011. If the company's four-quarter EBITDA exceeds $150 million, the contributions will rise to 30% of the July 2011 rate;

• The collective bargaining agreements are extended for five years following ratification and for 10 years for all pension modifications;

• The company may use casual transport drivers to fill in for regular, full-time union drivers who are absent due to illness or unscheduled events;

• The company may use distributors or wholesalers to distribute hybrid lines of branded products for low-volume customers;

• The company will not exit any current sales market to evade the terms of the agreement and will negotiate with the applicable unions before leaving a market for business reasons;

• All employees will receive their compensation through direct bank deposit or pay cards, except where prohibited by law;

• The initial post-restructuring board of directors will consist of nine members, including one each from the Teamsters and Bakers unions;

• If Hostess decides to sell its Merita brand or any associated facilities, the unions will support the sale and agree to all necessary contract modifications to implement the transaction;

• The holders of existing third-lien term loan debt will receive 75% of the reorganized equity;

• The union employees will receive 25% of the reorganized equity, to be shared in proportion to the concessions granted; and

• A management incentive plan will dilute the equity distribution percentages on terms to be determined.

Nearly 92% of Hostess' unionized workers are represented by the Bakers union or the International Brotherhood of Teamsters.

The remaining unionized Hostess workers are represented by one of the following: The Office & Professional Employees International Union; the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (UAW); the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union; the Glass, Molders, Pottery, Plastics & Allied Workers International Union; the United Food and Commercial Workers Union; or the Retail, Wholesale and Department Store International Union.

The consensual agreements outlined in the global settlement complement the non-consensual resolutions imposed by the court on local affiliates of the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union and other unions that failed to ratify the debtors' last, best and final offers for modifications to their collective bargaining agreements.

Three of the Bakers union locals ratified proposed contract changes and are covered under the proposed global settlement.

Hostess Brands, an Irving, Texas-based operator of regional bakeries, filed for bankruptcy on Jan. 11, 2012. Its Chapter 11 case number is 12-22052.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.