Dispute tied to Hostess cash collateral use motion won't be arbitrated

By Caroline Salls

Pittsburgh, Jan. 7 - A dispute related to Hostess Brands, Inc.'s motion to use cash collateral of ACE American Insurance Co. will not be headed to arbitration, according to a Monday filing with the U.S. Bankruptcy Court for the Southern District of New York.

The court said in Monday's ruling that ACE asked it to compel arbitration of what it called a contract dispute underlying the cash collateral motion.

Under previous assumed agreements, Hostess agreed to provide the cash collateral to the ACE companies to secure obligations owed under the Hostess debtors' insurance program.

Judge Robert D. Drain said those obligations continue to accrue, although the policies have now been replaced or expired because of a continuing expectation that injuries covered by the policies will manifest themselves.

According to the ruling, ACE argued that the cash collateral use motion is a breach of the collateral agreement. ACE said the collateral agreement requires arbitration of the dispute.

In his ruling, Drain said the parties did not agree to arbitrate the use of cash collateral.

Hostess Brands, an Irving, Texas-based operator of regional bakeries, filed for bankruptcy on Jan. 11, 2012. Its Chapter 11 case number is 12-22052.

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