Hostess Brands, the maker of Wonder Bread and high-calorie snack cakes like Twinkies and Ho Hos, has filed for Chapter 11 bankruptcy with a reorganization plan that promises a more competitive company in the future. Many businesses face this situation, and it is necessary if it wants to emerge a leaner organization that can better serve its customers.

This is the second time in the last eight years that the snack maker, once known as Interstate Bakeries, sought protection from creditors. The company filed for Chapter 11 bankruptcy in 2004 and emerged just three years ago.

The company is struggling on several fronts. Hostess Brands claims debts of $860 million. The largest creditor is the pension fund for unionized workers, a bill in excess of $944 million. According to the bankruptcy filing, Hostess Brands' assets are estimated to be between $500 million to $1 billion.

Hostess company officials feel business is hurting because many competitors do not have the high pension and health care expenses of union workers. The snack maker employs 19,000 people in all but two states. It hopes to renegotiate union collective bargaining agreements, but has not ruled out worker layoffs.

Hostess claims rivals, like the makers of Little Debbie cakes and Entemann's baked goods, have teamed up to take a greater share of the snack-buying market. To counteract the competition, the company's business restructuring would include modernization of its physical assets.

A final thorn in the 87-year-old, privately-owned snack maker's side is the American perception of its products. Consumers have turned away from cakes and breads with high-fat content and low nutritional value to healthier snacks that Hostess Brands does not make.

The filing is not expected to interfere with Hostess' day-to-day operations. The company secured a $75 million loan from Silver Point Capital LP to keep Twinkies on grocery store shelves during bankruptcy.

Source: The Wall Street Journal, "Twinkies maker Hostess seeks bankruptcy protection," Jan. 12, 2011