Interstate Bakeries looks to reject 28 union contracts with plan confirmation hearing on horizon

By Caroline Salls

Pittsburgh, Feb. 22 - Interstate Bakeries Corp. requested court approval to reject 28 collective bargaining agreements, according to Thursday filings with the U.S. Bankruptcy Court for the Western District of Missouri.

Specifically, the company is looking to reject the contracts of two local affiliates of the Bakery, Confectionary, Tobacco Workers and Grain Millers International Union, 18 existing agreements with 20 local affiliates of the United Food and Commercial Workers International Union and contracts with eight affiliates of various international unions covered under the American Bakers Association retirement plan.

Interstate said the memberships of 98% of the bakery union's affiliates ratified contract changes negotiated with the company. However, the company said the Biddeford, Maine, and Wayne, N.J., affiliates' failure to ratify the new contract does not give them the right to refuse a proposal that meets all of the necessary legal requirements.

According to the motion for rejection of the food worker union contracts, Interstate sent a proposal to the union on Feb. 14 that is in line with required labor cost savings and would achieve savings through changes to current health and welfare plans, while also providing for a generous profit sharing program.

However, Interstate said the lack of progress in negotiating mutually acceptable contract agreements with these affiliates has forced it to seek rejection of the contracts.

Meanwhile, the company said it must eliminate its contractual obligations to the other eight international union affiliates to allow Interstate to contribute to the American Bakers Association retirement plan.

Once the company makes the contribution, it said it can withdraw from the ABA retirement plan and liquidate a $65 million to $80 million claim while still in bankruptcy.

Interstate said either the ABA or the Pension Benefit Guaranty Corp. could assert this claim in connection with a retirement plan characterization lawsuit.

"Such a sizable post-emergence liability would substantially jeopardize IBC's efforts to restructure as a viable company because IBC simply will not have sufficient cash flows to avoid a return to Chapter 11," the company said in the motion.

If it is able to vest the underfunded liability payment obligation before it emerges from Chapter 11, the company said nearly all of its contingent liabilities to the ABA plan will become actual liabilities of Interstate and the PBGC. The liabilities could then be discharged as unsecured claims to be handled under the company's plan of reorganization.

Interstate said the ABA plan unions have not agreed to allow the company to withdraw from the plan. Because time is of the essence, Interstate said it has no choice but to seek rejection of the collective bargaining agreements.

The company said it will continue to try to negotiate contract changes with the ABA plan unions. In the meantime, the only change to those unions' existing contracts will be that Interstate will stop making payments to the ABA retirement plan on their behalf.

The hearings on all three of the contract rejection motions are scheduled for March 12.

The Kansas City, Mo., bakery operator filed for bankruptcy on Sept. 22, 2004. Its Chapter 11 case number is 04-45814.

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