Death of Twinkies on hold as judge tries to save Hostess jobs

WHITE PLAINS, New York Mon Nov 19, 2012 5:38pm EST

1 of 3. A box of Hostess Twinkies is seen on the shelves at a Wonder Bread Hostess Bakery Outlet in Glendale, California, in this November 16, 2012, file photo.

Credit: Reuters/Bret Hartman/Files

WHITE PLAINS, New York (Reuters) - Hostess Brands Inc agreed in court on Monday to enter private mediation with its lenders and leaders of a striking union to try to avert the liquidation of the maker of Twinkies snack cakes and Wonder Bread.

Hostess, its lenders and the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union (BCTGM) agreed to mediation at the urging of Bankruptcy Judge Robert Drain of the Southern District of New York, who advised against a more expensive, public hearing regarding the company's liquidation.

"My desire to do this is prompted primarily by the potential loss of over 18,000 jobs as well as my belief that there is a possibility to resolve this matter," Drain said.

The 82-year-old Hostess was seeking permission to liquidate its business, claiming that its operations have been crippled by a bakers strike and that winding down is the best way to preserve its dwindling cash.

Hostess suspended operations at all of its 33 plants across the United States last week as it moved to start selling assets.

Heather Lennox, a lawyer for Hostess, said it would be hard for the company to recover from the damage it sustained due to the strike even if an agreement was forthcoming. Yet following the hearing, Hostess Chief Executive Officer Gregory Rayburn told reporters that there was always a chance Hostess could be saved.

"I think we have to see what unfolds. My impression is that the judge wants to understand the parties' positions and some of their logic, but it doesn't change our financial position," Rayburn said.

"I'm happy to have the help," he added, referring to Drain's urging of discussions following a breakdown of communication between Hostess and the union. "Maybe the judge will help. But can I handicap how it's going to go? No way."

Hostess faces several objections to its liquidation plan.

The U.S. Trustee, an agent of the U.S. Department of Justice who oversees bankruptcy cases, said in court documents it is opposed to the wind-down plan because Hostess plans improper bonuses to company insiders.

Several unions also objected to the company's plans, saying they made "a mockery" of laws protecting collective bargaining agreements in bankruptcy. The Teamsters, which represents 7,900 Hostess workers, said the company's plan would improperly cut the ability of remaining workers to use sick days and vacation.

(Reporting by Nick Brown; Additional reporting by Tom Hals in Wilmington, Delaware; Writing by Martinne Geller and Brad Dorfman; Editing by Leslie Gevirtz, Bob Burgdorfer and Ciro Scotti)