Interstate Bakeries' senior lenders agree to fund standalone plan; still lacking crucial Teamsters' consent

By Caroline Salls

Pittsburgh, Oct. 22 - Interstate Bakeries Corp. is seeking court approval of a plan funding agreement with plan supporters JPMorgan Chase Bank, NA, McDonnell Investment Management LLC, Quadrangle Master Fund Ltd. and Silver Point Capital, LC, according to a company news release.

The plan supporters hold roughly 48% of the funded amounts under Interstate's pre-bankruptcy senior credit facility, the release said. In addition, Silver Point Finance LLC has committed to provide the company with $400 million in exit financing.

Under the plan funding agreement, the plan supporters have agreed to convert funded pre-bankruptcy senior secured debt into new debt and equity securities to be issued upon Interstate's emergence from Chapter 11.

Specifically, under the plan funding agreement and related plan of reorganization terms:

• The pre-bankruptcy lenders' $450 million in funded debt would be exchanged for $250 million in second-lien notes, $165 million of convertible secured notes and $35 million of class A common stock, each to be issued by reorganized Interstate;

• Holders of general unsecured claims would receive 25.9% of the outstanding shares of common stock of the reorganized company in the form of class B common stock, as well as the opportunity to participate in a rights offering for an additional $50 million of class B common stock;

• Existing common stock would be cancelled and shareholders would receive no distribution; and

• Reorganized Interstate would obtain $400 million in exit financing from Silver Point, consisting of a $120 million secured revolving credit facility, a $60 million senior secured term loan facility and a $220 million letter-of-credit facility.

Both the plan funding agreement and exit financing commitment are subject to ratification of related changes to the company's collective bargaining agreements with major unions and to Interstate obtaining an extension of its debtor-in-possession facility, which is scheduled to mature on Feb. 9.

As previously reported, the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union leadership agreed to collective bargaining agreement changes on Sept. 28, and roughly 90% of that union's locals have ratified the amended agreements.

Interstate said it is still negotiating contract changes with the International Brotherhood of Teamsters, but it has not yet reached an agreement with the Teamsters on changes needed to fulfill the requirements of Silver Point's financing commitment.

"The plan funding agreement and exit financing commitment together mark an important milestone for IBC," Interstate chief executive officer Craig Jung said in the release.

"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 IBC to emerge from Chapter 11 with sufficient liquidity to compete in the marketplace.

"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."

Sale still possible

Jung said in the release that if the company does not reach an agreement on changes to the Teamsters' collective bargaining agreement by Nov. 7, it may be forced to withdraw its exit commitment and plan funding agreement motions to avoid underwriting fees and $12 million in potential break-up fees.

Interstate said it still believes that the best alternative for maximizing value for all of its stakeholders is to emerge from Chapter 11 as a standalone company, but it has been exploring other alternatives, including a potential sale of the company.

Interstate said it has recently begun discussions with potential strategic buyers that may be interested in acquiring the company or its assets.

"The financial commitment we have received from Silver Point and the other supporters 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," Jung said in the release.

The Kansas City, Mo., bakery operator filed for bankruptcy on Sept. 22, 2004 in the U.S. Bankruptcy Court for the Western District of Missouri. Its Chapter 11 case number is 04-45814.

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