The volatile commodities market played a big role in the Hostess bankruptcy, but rising labour costs are really killing the company’s balance sheet.
We broke down the Chapter 11 bankruptcy filings, which show that an astonishing 97% of the company’s unsecured claims are from employee pension funds, totaling nearly $1 billion. The company’s No. 1 creditor is the Bakery & Confectionery Union & Industry International Pension Fund, which lists a claim of $944.2 million. Its smallest debt is $425,000 owed to makers of doughnuts and mixes.
Among the other top 40 creditors, 14 are retirement funds, bringing total employee pension claims to $989.3 million. Two additional creditors, employee benefit funds, represent another $946,000 in financial claims. This means that Hostess in the past agreed to significant employee health and retirement obligations that, given the company’s current state of financial affairs, they won’t be able to meet.
Almost all of Hostess’ 19,000 employees are unionized, unlike some of their competitors, which officials say has led to higher labour costs. Hostess officials are now planning to use the restructuring to ask its employees to agree to significant concessions, such as longer work days, paying more for healthcare, and potentially, employee layoffs, the New York Post reported Tuesday.
But that’s likely easier said than done, considering that union employees already rejected such an agreement last year, according to the Post, who added that the company could be broken up and sold if the unions don’t play ball.