Interstate granted court OK to reject two union contracts; hearing on rejection of 26 others continued

By Jennifer Lanning Drey

Portland, Ore., March 12 - Interstate Bakeries Corp. was granted approval from the U.S. Bankruptcy Court for the Western District of Missouri to reject the contracts of two local affiliates of the Bakery, Confectionary, Tobacco Workers and Grain Millers International Union, according to a source familiar with the case.

However, the court continued the portion of the hearing related the Interstate's motion to reject 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.

Further arguments on the matter will be heard on April 17 and April 18.

As previously reported, according to the motion for rejection of the food worker union contracts, Interstate said it 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.

The company also 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 could send Interstate back into 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 Kansas City, Mo., bakery operator filed for bankruptcy on Sept. 22, 2004. Its Chapter 11 case number is 04-45814.

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