Interstate struggles on despite bankruptcy petition

- Last updated on GMT

Related tags: Company, Jpmorgan chase

The largest wholesale bakery in the United States, Interstate
Bakeries, has filed for bankruptcy amid a tide of mounting debts,
rising costs and falling sales, but the company's new fix-it
specialists have vowed that the show will go on.

Interstate's debts have spiralled to $1.3 billion (more than €1 billlion) despite the company making bread, rolls and cakes under some of America's best known brand names, including Wonder, Hostess, Twinkies and HomePride.

The company has cited a range of issues hurting its finances: declining bread sales as a result of low-carb diets, higher costs for ingredients and energy, excess industry capacity and rising employee healthcare and pension costs.

Chairman and chief executive James Elsesser resigned after the company filed for bankruptcy under Chapter 11 of the US Bankruptcy Court yesterday, prompting a 62 per cent dive in Interstate's share price during Wednesday's early morning trading.

But the decision to file for Chapter 11 protection does not mean that the end is nigh for IBC. The company has swiftly appointed reputed turnaround wizards Tony Alvarez and John Suckow as chief executive and chief restructuring officer, respectively, to try and dig Interstate out of its hole.

Alverez is co-founder and co-chief executive of global corporate advisory and turnaround management services firm, Alavarez and Marsal. Suckow is the firm's managing director.

Interstate has also negotiated $200 million worth of funding from the JPMorgan Chase Bank which, if given court approval, will safeguard operating expenses and employees' wages in the near future.

Alvarez said he expected day-to-day operations to continue as normal and that output should not be affected.

"Interstate has some of the most recognisable and popular baked breads and sweet goods in the nation. By filing under Chapter 11 and obtaining the financing, the company should have the liquidity, time and resources necessary to thoroughly identify, assess and address the issues that will enable this company to be successful in the future."​Of course, the company has been warning for some time of the impact of low-carbs and high prices on its business, so identifying and assessing the issues should not be too hard. Where the company has so spectacularly failed - and where Alvarez and Suckow will have to act quickly - is in addressing the issues and turning the company around.

The best the company has managed so far is a desultory attempt at restructuring, announcing the closure of its bread bakery in Monroe, Los Angeles, and the loss of 50 jobs, back in July. Next month will see a second bakery, in Buffalo, New York, close its doors, with the loss of a further 200 jobs.

More plant closures are likely, however, as the group seeks to cope with overcapacity caused by declining white bread sales, in turn caused by the low-carb diet effect.

But reducing capacity is only part of the story. The company will also have to be more ready to adapt to changing consumer demand, tailoring its new product development more appropriately.

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