Farewell, Twinkies

[qayak]

Unfortunately, that is all too true.


In liquidation, all proceeds from selling off the brand and other assets will go to pay the creditors, not the owners, not management. Stockholders are wiped out entirely, stock options are worth zero.

And management is now out of a job just like all the workers.

Yes, management personnel were (fairly) compensated for sticking around and trying to get the failing company back on it's feet; now that that effort has failed it won't exactly look good on their resumes, now will it?

I don't think you understand how this company is structured. Ripplewood controls the company, they put in $130 in cash in order to control the company but they really didn't because they added that to the Hostess debt. That's why the Hostess debt went from $450 million to $680 million.

Monarch and Silver Point bought the debt for what is rumoured to be about 35 cents on the dollar. They then gave high interest loans to Hostess to cover the debt.

Hostess came out of receivership.

These companies ARE the owners of Hostess and the creditors. They are the ones getting all the money. They got the $110 million in wages the unions gave up. They got the interest on the loans. They got the pension funds. And they will get the difference between what they paid for the debt and what the assets are worth.

ETA- Why do you think they fought off the $580 million bid from Bimbo in 2007? Once the Hostess debt had been paid they would have only made $130 million. As it stands they have made significantly more than that and stand to make even more.

 

[balrog666]

I don't think you understand how this company is structured. Ripplewood controls the company, they put in $130 in cash in order to control the company but they really didn't because they added that to the Hostess debt. That's why the Hostess debt went from $450 million to $680 million.

Monarch and Silver Point bought the debt for what is rumoured to be about 35 cents on the dollar. They then gave high interest loans to Hostess to cover the debt.

Hostess came out of receivership.

These companies ARE the owners of Hostess and the creditors. They are the ones getting all the money. They got the $110 million in wages the unions gave up. They got the interest on the loans. They got the pension funds. And they will get the difference between what they paid for the debt and what the assets are worth.

ETA- Why do you think they fought off the $580 million bid from Bimbo in 2007? Once the Hostess debt had been paid they would have only made $130 million. As it stands they have made significantly more than that and stand to make even more.

Ripplewood put up $130 million to run Hostess and because of the nature of their deal, they have lost it all. Gosh, what winners they are!

Top line creditors who hold secured debt will be paid first or those assets will be lost. The bankruptcy court will sort that out.

Monarch and Silver Point own the senior debt, the details don't matter but they are not likely to be first in line even if they get the bulk of any liquidation payouts. The amount they paid for that debt is totally irrelevant.

Gee, of course interest was paid to loan/bond holders - why would you expect it to be otherwise?

Evidently you know nothing of finance if you really believe those companies got any of the "110 million in wage concessions" in the form of cash payments.

As for "they got the pension funds" - that is just beyond silly.

 

[alfaniner]

Had to see if I could do it. I think I succeeded.

 

[DragonLady]

Homemade Twinkies: http://leitesculinaria.com/71100/recipes-homemade-twinkies.html and the seven minute frosting: http://leitesculinaria.com/71110/recipes-seven-minute-frosting.html

Has anyone else heard the rumors that Pabst Blue Ribbon may buy the brand?

 

[balrog666]

Homemade Twinkies: http://leitesculinaria.com/71100/recipes-homemade-twinkies.html and the seven minute frosting: http://leitesculinaria.com/71110/recipes-seven-minute-frosting.html

Has anyone else heard the rumors that Pabst Blue Ribbon may buy the brand?

Yes, but they will not buy the company (and it's debts and it's legacy liabilities) and that means they will almost certainly go non-union if they buy.

Which means all those previous Bakers union employees can go whine at their union hall for all the good that will do ...

 

[Foolmewunz]

Yes, but they will not buy the company (and it's debts and it's legacy liabilities) and that means they will almost certainly go non-union if they buy.

Which means all those previous Bakers union employees can go whine at their union hall for all the good that will do ...

Pabst has been a union supporter for decades. Their beer is now out-sourced to Miller. Miller (all it's own labels and the private brands they make for others) is brewed by workers belonging to an offshoot of the UAW!

Nice try, though.

 

[balrog666]

Pabst has been a union supporter for decades. Their beer is now out-sourced to Miller. Miller (all it's own labels and the private brands they make for others) is brewed by workers belonging to an offshoot of the UAW!

Nice try, though.

Bwaaaaaaaaaaaaaahahahahaha!!

They aren't stupid enough to go where Ripplewood, et al. have utterly failed. They don't need the unions, they don't need the distribution centers, they don't need the ancient bakeries! All they need is the imprimatur of the brand which they can buy very, very cheaply.

Bwaaaaaaaaaaaaaaaaahahahahaha!

 

[Foolmewunz]

Bwaaaaaaaaaaaaaahahahahaha!!

They aren't stupid enough to go where Ripplewood, et al. have utterly failed. They don't need the unions, they don't need the distribution centers, they don't need the ancient bakeries! All they need is the imprimatur of the brand which they can buy very, very cheaply.

Bwaaaaaaaaaaaaaaaaahahahahaha!

Ah, smileys and the bwahaha! One always knows when you're pulling information out of your nether reaches.

So, typically, you have no idea whether they go non-union or not. You just project your thoughts on them. You have no idea of the history of Pabst and made a typically erroneous post and are now covering for it with bluster. Off with you and your pathological reactions.

 

[joobie]

the big rumor here is that bimbo is going to buy the brands. bimbo is a huge union employer here.

it should also be noted that the canadian firm that produces hostess snacks under license is a union company. for some reason they aren't bankrupt.

 

[The Don]

Ripplewood put up $130 million to run Hostess and because of the nature of their deal, they have lost it all. Gosh, what winners they are!

It depends. If I paid $130 million and as a result managed to extract more than $130 million in fees and interest over the years then anything I get out of the bankruptcy proceedings is gravy.

Top line creditors who hold secured debt will be paid first or those assets will be lost. The bankruptcy court will sort that out.

If the private equity companies and hedge funds aren't first in line then they're not doing their job properly.

Monarch and Silver Point own the senior debt, the details don't matter but they are not likely to be first in line even if they get the bulk of any liquidation payouts. The amount they paid for that debt is totally irrelevant.

Not really. If I pay $1 to get $3 of debt then if I charge 10% on that debt I'll recoup my investment in around 3 years.

If as a result of bankruptcy, I get 50c back on the dollar then I'll also get back $1.50.

Because I've bought the debt cheaply, I've maximised my opportunity to make money out of the company's operations and/or the subsequent bankruptcy.

Gee, of course interest was paid to loan/bond holders - why would you expect it to be otherwise?

Not at all, but it needs to be added into the overall equation. If debt has been bought at a significant discount then the effective interest rate being received is multiplied. Under these circumstances, the interest payments alone over a few years can provide an excellent return.

Evidently you know nothing of finance if you really believe those companies got any of the "110 million in wage concessions" in the form of cash payments.

If the $110m in concessions allowed the debt holders to be paid in full on time then the money is effectively being taken from the employees and given to the companies providing the financing.

As for "they got the pension funds" - that is just beyond silly.

Could the company borrow against the value of the pension fund and then pay a generous dividend ? This kind of thing used to be legal, don't know if it still is.

 

[WildCat]

So Hostess had $850 million in debt, or so. Grupo Bimbo will pay something like $150 million for the brands. The company's facilities will be sold at rock-bottom prices too, say $400 million for all the bakeries, trucks, the whole shootin' match. So the lenders are going to eat $300 million or so. That doesn't sound like a recipe (heh heh) for profit to me.

It's all a scheme by the guys who lost the $300 million to give their management team $5 million in pay. Can you smell the profit?

 

[WildCat]

To extend the audiophile analogy, it's very common when pointing out this issue for them to make the point of how superior there $5000 cord is to a universally accepted piece of junk, rather than the $50 cord you proposed.

I'll ask you the same question. Do you have any evidence that the excessive price payed by these companies actually results in better performance from their CEOs?

You have it backwards. People get paid what they do when hired based on past performance. Nobody throws more money at someone under the assumption they'll magically produce at the level the pay demands. That would be like an NFL owner bumping the pay of his 8th round draft pick rookie wide receiver to that of Calvin Johnson, and expecting the same results. It doesn't work like that.

 

[The Don]

It's all a scheme by the guys who lost the $300 million to give their management team $5 million in pay. Can you smell the profit?

Depends how much they paid for the debt in the first place and how much they've been paid in interest payments, arrangement fees and management fees in the interim.

If the $850 debt only cost you, say, $300m in the first place then collecting $550m in the firesale looks like good business.

Of course the people who sold you $850m of debt for $300m in the first place took a huge loss but I guess they wanted out.

 

[WildCat]

What I don't understand is why their bonus isn't going to be zero dollars.

Under their watch, the company ceased to exist. Now they want to be rewarded for it?

I'm sure the bakers union president will take a big pay cut after losing thousands of union members on his watch.

 

[WildCat]

the big rumor here is that bimbo is going to buy the brands. bimbo is a huge union employer here.

it should also be noted that the canadian firm that produces hostess snacks under license is a union company. for some reason they aren't bankrupt.

Maybe they don't have the same archaic and inefficient work rules the US unions did? I also think that skyrocketing health insurance costs aren't an issue for Canadian companies.

 

[qayak]

Ripplewood put up $130 million to run Hostess and because of the nature of their deal, they have lost it all. Gosh, what winners they are!

This is really getting tedious.

They didn't put in anything. If you owned a company with $450M in debt and I said, "I'll give you $130M if you let me manage it," and you agreed does that mean you now have $680M in debt?

Not in the real world. It should mean that if you spend the money on something else, you still have $450M in debt, or if you put it against the debt, you have a debt of $320M.

Ripplewood didn't infuse money into the company, as all the financial experts point out, they simply added to the debt.

 

[Meadmaker]

I'm sure the bakers union president will take a big pay cut after losing thousands of union members on his watch.

That's up to the bakers' union. However, that guy still has a job, for the moment. He might not keep it, if the rank and file blame him for the loss of Hostess jobs, but for the moment there is still a bakers' union, and they still pay him a salary.

There is no more Hostess Brands. I'm thinking that the people who ran the place into oblivion shouldn't get a big reward for doing it. By asking for bonuses in such circumstances, they've given us a fine example for those of us who occasionallly must try to explain the meaning of "chutzpah".

 

[WildCat]

This is really getting tedious.

They didn't put in anything. If you owned a company with $450M in debt and I said, "I'll give you $130M if you let me manage it," and you agreed does that mean you now have $680M in debt?

Is that what happened? No equity was bought for that $130 million?

Not in the real world. It should mean that if you spend the money on something else, you still have $450M in debt, or if you put it against the debt, you have a debt of $320M.

Are you claiming the $450 million in debt just vanished in the air?

Ripplewood didn't infuse money into the company, as all the financial experts point out, they simply added to the debt.

So you claim Ripplewood borrowed hundreds of millions of dollars, kept it all and left the company with the debt? And somehow they avoided being liable for that debt as owners of the company?

 

[WildCat]

There is no more Hostess Brands. I'm thinking that the people who ran the place into oblivion shouldn't get a big reward for doing it. By asking for bonuses in such circumstances, they've given us a fine example for those of us who occasionallly must try to explain the meaning of "chutzpah".

Or maybe it's just the owners thanking them for attempting to do a difficult and ultimately impossible job.

 

[The Don]

So you claim Ripplewood borrowed hundreds of millions of dollars, kept it all and left the company with the debt? And somehow they avoided being liable for that debt as owners of the company?

That's exactly what happened. It's exactly what happened when the Glaziers bought Manchester United.

Before the Glaziers bought Manchester United, the club had no debt. The Glaziers borrowed hundreds of millions of pounds, used this money to buy the club and then transferred the debt to the club (reimbursing themselves for the money they borrowed plus a dividend). The club is then responsible for that debt.

Of course the debt reduces the value of their asset but if the club were to fold, the Glaziers wouldn't be on the hook for a penny and yet have been paid handsomely over the years.