IBC: gains 400 million USD in post-bankruptcy financing

Kansas City / MO. (ibc) Interstate Bakeries Corporation (IBC) filed a motion with the U.S. Bankruptcy Court requesting authorization to enter into an agreement with Silver Point Finance LLC to provide the company with up to 400 million USD in exit financing upon IBC´s emergence from Chapter 11. In addition, the company is also seeking Bankruptcy Court permission to enter into a Plan Funding Agreement with JP Morgan Chase Bank, N.A., McDonnell Investment Management LLC, Quadrangle Master Fund Ltd., and Silver Point Capital, L.C. (the Plan Supporters), holders of approximately 48 percent of the funded amounts outstanding under the Company´s pre-petition senior credit facility. IBC has requested that the Bankruptcy Court schedule a hearing on the Motion for November 07, 2007, which is the same day that IBC´s continued motion to extend the period in which it has the exclusive right to file and solicit acceptances of a plan is scheduled to be heard.

Under the Plan Funding Agreement, the Plan Supporters have agreed, under a confirmed Chapter 11 plan, to convert approximately 218 million USD of funded pre-petition senior secured debt into new debt and equity securities to be issued upon the company´s emergence from Chapter 11. Both the Plan Funding Agreement and exit financing commitment are subject to customary conditions, including a requirement that
(a) the Company obtain agreement to and ratification of changes to its collective bargaining agreements with major unions that are essential to implement the Company’s business plan, and
(b) the Company obtain an extension of its DIP financing facility, which is scheduled to mature on February 09, 2008. If all of these conditions are not satisfied there can be no assurances that they will be waived or that alternate financing will be available on acceptable terms or at all.

As previously announced, IBC reached agreement with the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union leadership on September 28, 2007. Thus far approximately 90 percent of locals have ratified the modified agreements. IBC continues to bargain with the International Brotherhood of Teamsters (IBT), but has not yet reached agreement with IBT leadership on all contract changes necessary to implement IBC´s business plan and fulfill the requirements of Silver Point´s financing commitment.

«The Plan Funding Agreement and exit financing commitment together mark an important milestone for IBC. Silver Point´s 400 million USD 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», said Craig Jung, Chief Executive Officer. «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».

IBC also said that if it received authorization from the Bankruptcy Court to enter into the financing agreements with Silver Point it will be obligated to pay at least five million USD in commitment fees for the exit facility commitment and up to twelve million USD in potential breakup fees if, among other reasons, IBC is not able to obtain the union agreements necessary to implement its business plan.

As previously announced, IBC continues to believe that the best alternative for maximizing value for all of its stakeholders is to emerge from Chapter 11 as a standalone company, but at the same time IBC has been exploring other alternatives for maximizing the value of its bankruptcy estates and will continue to do so, including a potential sale of the company in its entirety or in a series of transactions. Recently, IBC has commenced discussions with potential strategic buyers that may be interested in acquiring the company or its assets. IBC emphasized that throughout this process it has and anticipates that it will continue to operate normally to achieve its business plan.

«The financial commitment we have received from Silver Point and the other Plan 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. We believe that IBC has the business plan, leadership, skilled work force, and resources to emerge from Chapter 11 as a powerful competitor in the baked goods industry able to achieve sustainable profitability. However, if we are not able to reach agreement with the Teamsters before November 07, we may be forced to withdraw the motion to avoid incurring underwriting fees and potential breakup fees and instead pursue other value-maximizing alternatives», Jung concluded.

Under the terms of the proposed Plan Funding Agreement and restated plan of reorganization proposed by IBC:

  • The pre-petition lenders´ funded debt totaling approximately 450 million USD would be exchanged for (a) 250 million USD in second lien notes, (b) 165 million USD of convertible secured notes and (c) 35 million USD of class A common stock, each to be issued by Reorganized IBC.
  • Holders of general unsecured claims would receive approximately 25,9 percent of the outstanding shares of common stock of Reorganized IBC (in the form of class B common stock) and the opportunity to participate in a rights offering entitling such unsecured creditors to subscribe for an additional 50 million USD of class B common stock.
  • If the proposed plan of reorganization is consummated, the existing common stock of the Company would be cancelled and existing shareholders would not receive any distribution.
  • Reorganized IBC would obtain exit financing from Silver Point in an amount up to 400 million USD, consisting of a 120 million USD secured revolving credit facility, a 60 million USD senior secured term loan facility and a 220 million USD letter of credit facility.

IBC is seeking alternative investment proposals to the transactions contemplated by the agreements with Silver Point and the other Plan Supporters to ensure that it receives the highest and best offer to maximize value for the Company and its constituents, however, such alternative proposals would require IBC reaching agreement with the Teamsters.

About: Interstate Bakeries Corporation (IBC) is one of the United States´ largest commercial bakers and distributors of fresh-baked bread and sweet goods, sold under various brand names. The company is headquartered in Kansas City, Missouri. IBC filed for bankruptcy protection in September 2004, citing liquidity issues resulting from declining sales, a high fixed-cost structure, excess industry capacity, rising employee healthcare and pension costs, and higher costs for ingredients and energy. The company continues to operate its business in the ordinary course as a debtor-in-possession.