KANSAS CITY — Objections to Interstate Bakeries Corp.’s motion for an extension to file a reorganization plan fail to advance a constructive alternative that would maximize value or bring the embattled wholesale baker’s cases to a close, I.B.C. said in an Oct. 1 filing in U.S. Bankruptcy Court for the Western District of Missouri.
The response came after I.B.C. received one general objection, from the International Brotherhood of Teamsters, and two limited objections, from JPMorgan Chase Bank, N.A., and the Official Committee of Unsecured Creditors, respectively, to its exclusivity motion.
According to I.B.C., the objectors seek to advance their "own parochial interests to the detriment of other parties in interest."
Still in tussle with Teamsters
Last week, the Teamsters asked the U.S. Bankruptcy Court to deny I.B.C.’s request for more time to develop its reorganization plan.
In a Sept. 26 filing with the Bankruptcy Court, the Teamsters, which represent about 10,000 of I.B.C.’s 25,000 employees, said the maker of Twinkies and Wonder Bread has had more than enough time over the past three years to develop a reorganization plan.
"Like a beached whale, these large debtors are going nowhere," the Teamsters said in their filing.
Interstate Bakeries, which has until Oct. 5 to explain how the company plans to exit bankruptcy, in early September asked the Bankruptcy Court to extend the deadline to Jan. 15, saying it was talking with lenders interested in providing post-bankruptcy funding but those discussions hinged on reaching agreement with its two top unions by Sept. 30. Although it reached agreement with the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union, I.B.C. failed to do so with the Teamsters. The company now must wait to hear its fate at an Oct. 3 hearing.
The Teamsters said the court should hold I.B.C. to the current Oct. 5 deadline and allow others, including lenders and unsecured creditors, to introduce reorganization plans of their own.
Responding to the Teamsters objection, I.B.C. disputed the assertion it had not made much progress in the last seven months and is not likely to make much progress in the future.
"This is untrue," I.B.C. stated in its Oct. 1 filing. "As the Teamsters know from their membership on the committee, the debtors have made tremendous progress on every major front since the beginning of this calendar year, when a new board of directors and management were installed, including with respect to their operations, human resources, exit financing and labor issues. Ironically, the only area where progress has not been made despite the company’s diligent efforts, is with the Teamsters themselves, who refuse to negotiate in good faith."
Interstate Bakeries also noted that the concessions being asked of the Teamsters are "modest."
"The jobs of roughly one-third of Teamster-represented employees will remain basically unchanged except those employees will be furnished with newer technology and equipment to make their jobs easier," I.B.C. said. "Other employees will no longer load, unload or drive trucks. Rather, they will assume a more focused sales function and will receive comparable compensation with opportunity for growth and enjoy a more favorable work schedule."
The company went on to say that discussions with the Teamsters have been unproductive because of attempts "to delay, divert, discredit and intimidate."
"Rather than engage in constructive discussions regarding the business plan and the impact of and need fro the requested concessions, the Teamsters have engaged in tactics designed solely to defend the indefensible," I.B.C. said.
JPMorgan wants October deadline
JPMorgan Chase Bank, N.A. also filed an objection to the extension. JPMorgan, which leads a group of lenders that were owed $450 million when I.B.C. filed for bankruptcy in September 2004, stated in its Sept. 28 filing with the U.S. Bankruptcy Court in the Western District of Missouri that Oct. 31 should be the drop-dead date in which I.B.C. may file its reorganization plan.
JPMorgan said I.B.C. possesses "neither sufficient non-core assets to liquidate nor enough surplus working capital to support a bleeding business."
Regarding I.B.C.’s request to extend the deadline to Jan. 15 from Oct. 31, JPMorgan said I.B.C. was "dead wrong" to request such an extension based on commitments to infuse needed equity capital and union agreements providing for required work rule changes and benefit concessions.
"It is completely unacceptable for the debtors to have the unilateral option to extend exclusivity in the manner proposed," JPMorgan said. "If such agreements are obtained, and the prepetition agent hopes that they will be, the debtors need to file a Chapter 11 plan embodying those agreements by the end of October. The debtors should not and cannot have more time."
JPMorgan did recognize that Mr. Jung and I.B.C. "have worked quickly to develop a comprehensive business plan to reorganize and restructure virtually every aspect of the debtors’ businesses," but added that efforts to date have failed.
Unsecured creditors speak out
Meanwhile, I.B.C.’s unsecured creditors also on Sept. 28 issued a filing, indicating their support for a limited continuation of the company’s exclusivity periods, saying such a move "is appropriate at this juncture." But the creditors said such a continuation must be conditioned upon I.B.C. soliciting interest from both potential financial investors and strategic investors who may be interested in purchasing all or parts of I.B.C.’s business.
To date, I.B.C. has required potential investors to sign a confidentiality agreement that includes a provision forbidding a potential investor from having any discussions with any third parties, including the committee and its advisers, about information concerning I.B.C.
"The committee has found it difficult, if not impossible, to have any meaningful discussions with potential investors that only have access to public information concerning the debtors," the unsecured creditors stated.
For its part, I.B.C. has said it has not denied the committee access to potential investors, but rather, has requested advance notice of such contacts in order to coordinate information flow and contacts to assure that such communication will not injure the company’s ongoing efforts.
"Should the committee believe that the debtors are unreasonably denying it access to a potential investor in the future, the debtors hereby agree that the committee can bring the matter to the court for consideration on an expedited basis," I.B.C. noted.
In a separate filing on Sept. 28, the unsecured creditors filed an objection to I.B.C.’s motion for permission to withdraw from the bread market in Southern California.
"The committee is concerned that the decision to withdraw from the Southern California bread market has negatively impacted the value that a potential strategic investor (or other investor) may assign to the debtors’ overall business," the creditors wrote. "The debtors never attempted to sell their Southern California bread business as a going concern, which the committee believes could have resulted in a far better value than a possible sale of the business after the debtors have announced their exit from the Southern California bread market. In addition, the debtors’ decision may have negatively affected the debtors’ ability to secure financing in connection with their emergence from Chapter 11."
Responding to the committee and Teamsters objections, I.B.C. on Oct. 1 filed a reply in the U.S. Bankruptcy Court in the Western District of Missouri saying the objections "both miss the mark and should be overruled."
"Throughout this case, the Teamsters have sought to avoid engaging constructively on the need for real change to save I.B.C., preferring, instead, to threaten, bully and intimidate in an effort to (i) delay any decisions or corrective actions, in order to maintain the status quo, (ii) divert attention from the real issues by manufacturing disputes about anything but the required changes, and (iii) discredit management in order to foster an ‘us’ against ‘them’ mentality that precludes useful dialogue about changes to improve I.B.C. in the best interest of all constituents, including the employees."
Interstate stressed in its filing that at no time was a verbal guarantee given to remain in business in the Southern California market.
"The exit from the Southern California market is the result of the fact that I.B.C.’s bread products simply do not sell profitably there," the company said. I.B.C. went on to state that the creditors’ concern that the exit from the market may have a negative impact on the value of the company does not outweigh the business case for exiting the market.
"There is no compelling reason for the debtors to continue losing money trying to sell white bread in Southern California," I.B.C. said. "As stated in the motion, and as will be demonstrated at the hearing on this matter, even with the transformation initiatives built in to the projections from the debtors’ business plan, the bread business in this market will not turn a profit through 2012."
I.B.C. went on to say that the exit will transform the Southern California market from unprofitable to profitable, and, therefore, should help to increase value.
"Indeed, over a relatively short period, the sale of assets also will make the exit cash flow positive, notwithstanding the estimated initial cash costs to implement the exit," the company said.