Bakery gets $200 million to keep operating during bankruptcy

Friday, October 22, 2004

KANSAS CITY, Mo. -- Interstate Bakeries Corp. received bankruptcy court approval Thursday to use $200 million in financing as it tries to reorganize its business.

J.P. Morgan Chase & Co. is providing the money, which Interstate Bakeries will use to pay salaries, supplies costs and other expenses for its 32,000 employees and more than 50 bakeries. The Kansas City-based company is the nation's largest wholesale baker, and purveyor of lunch box staples Wonder Bread and Hostess Twinkies.

U.S. Bankruptcy Judge Jerry Venters approved $50 million in financing last month, shortly after Interstate Bakeries filed for Chapter 11 bankruptcy protection, blaming high production costs and low sales. He approved the remaining $150 million in revolving credit on Thursday.

Venters also approved the company's contract with Alvarez & Marsal, a turnaround specialist hired to either help steer Interstate Bakeries into profitability or oversee its dissolution.

He overrode objections from a group of major shareholders, which criticized an undefined "incentive fee" in the contract. The fee, to be paid at the end of the case, would be either 5 percent of the value Alvarez & Marsal created in the company -- the board of directors has yet to define how that "value" is determined -- or a minimum of $3.85 million.

Peter Wolfson, an attorney representing the shareholder group, said the group believed that without a definition of how the incentive fee is awarded, the minimum amount could be too generous and reduce the amount of value available to creditors and shareholders.

While most shareholders lose everything in a bankruptcy, several investors believe Interstate Bakeries could still have value and have doubled the price of its stock since the company filed for protection.

Shares, which are sold over the counter, ended the day Thursday unchanged at $3.85.

"We want them to have an incentive to do a good job, but ... it should be aligned with the shareholders' interests," Wolfson told Venters.

Venters, however, said any fee would still have to pass his muster and be open to challenge by any other party in the case.

"I'm stingy on incentive fees," he said.

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