I.B.C. files motion for exit financing funds

by Eric Schroeder
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KANSAS CITY — Interstate Bakeries Corp. on Monday filed a motion with the U.S. Bankruptcy Court requesting authorization to enter into an agreement with Silver Point Finance L.L.C. to provide the company with up to $400 million in exit financing upon I.B.C.’s emergence from Chapter 11. The embattled wholesale baker also said it is seeking Bankruptcy Court permission to enter into a Plan Funding Agreement with JP Morgan Chase Bank, N.A., McDonnell Investment Management L.L.C., Quadrangle Master Fund Ltd., and Silver Point Capital, L.C. (the Plan Supporters). The groups account for approximately 48% of the funded amounts outstanding under I.B.C.’s pre-petition senior credit facility.

As part of its motion, I.B.C. has requested the Bankruptcy Court schedule a hearing for Nov. 7, which is the same day the company’s continued motion to extend the period in which it has the exclusive right to file and solicit acceptances of a plan is scheduled to be heard.

According to I.B.C., under the Plan Funding Agreement, the Plan Supporters have agreed, under a confirmed Chapter 11 plan, to convert approximately $218 million of funded pre-petition senior secured debt into new debt and equity securities to be issued upon I.B.C.’s emergence from Chapter 11. Interstate Bakeries said both the Plan Funding Agreement and exit financing commitment are subject to customary conditions, including a requirement that the company obtain agreement to and ratification of changes to its collective bargaining agreements with major unions that are essential to implement the company’s business plan, and the company obtain an extension of its DIP financing facility, which is scheduled to mature on Feb. 9, 2008.

In late September, I.B.C. reached agreement with the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union leadership on modified agreements. To date, approximately 90% of locals have ratified the agreements. Progress has not been as good with the International Brotherhood of Teamsters, which late last week said it had no confidence in I.B.C.’s chief executive officer Craig Jung. The Teamsters submitted a letter with nearly 4,000 Teamster I.B.C. workers signatures to I.B.C.’s board of directors, calling Mr. Jung’s management decisions "misguided and dangerous."

But for his part, Mr. Jung believes the Plan Funding Agreement and exit financing commitment are examples that I.B.C. is taking action to emerge from bankruptcy.

"Silver Point’s $400 million capital commitment to our company sets the foundation for achieving a rational capital structure to support the company’s business plan and allow I.B.C. to emerge from Chapter 11 with sufficient liquidity to compete in the marketplace," Mr. Jung said. "But, we have very little time left to reach a mutually acceptable agreement with the Teamsters in order to save our company and our jobs. Now is clearly the time for Teamsters’ union leadership to recognize that the livelihood of 25,000 families rests squarely on their shoulders."

The company also said that if it received authorization from the Bankruptcy Court to enter into the financing agreements with Silver Point it will be obligated to pay at least $5 million in commitment fees for the exit facility commitment and up to $12 million in potential breakup fees if, among other reasons, the company is not able to obtain the union agreements necessary to implement its business plan.

Mr. Jung said the financial commitment from Silver Point and others "signals a vote of confidence in our business plan, at the heart of which is reshaping our Path-to-Market to lower our cost structure, build competitive advantage and increase our ability to meet customers’ needs.

"We believe that IBC has the business plan, leadership, skilled work force, and resources to emerge from Chapter 11 as a powerful competitor in the baked goods industry able to achieve sustainable profitability. However, if we are not able to reach agreement with the Teamsters before Nov. 7, we may be forced to withdraw the motion to avoid incurring underwriting fees and potential breakup fees and instead pursue other value-maximizing alternatives."

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