11/2/07

Teamsters fully aligned with Clinton crony

Ron Burkle, the Clinton-crony billionaire who favors unions over shareholders, is roiling company management and giving creditors a chance of higher returns with his effort to rescue bankrupt Interstate Bakeries Corp.

Interstate, the maker of the once iconic and now nutritionally incorrect Twinkies and Wonder Bread, has become more than a food fight between a Burkle-Teamster alliance and company Chief Executive Officer Craig Jung. Traders say the battle between the 55-year-old Burkle and Jung, who is backed by hedge-fund manager Silver Point Capital LP, will sweeten returns for creditors owed almost $1 billion.

"Competition is great," said Kirk Ruddy, senior vice president and director of claims trading at Tejas Inc., an Austin, Texas, brokerage. "I think we are going in the right direction."

After three years of reorganization efforts, Interstate last month outlined a bankruptcy plan that would cancel the company's stock and pay creditors with new shares. The plan favors Interstate's bank lenders over unsecured bondholders and other creditors. Those groups are counting on Burkle's Yucaipa Cos. to make a better offer, sparking a bidding war for their support.

Prices on some of the Kansas City, Missouri-based company's unsecured debt have risen, indicating creditors are betting on higher recoveries.

Susan Watson, a bankruptcy adviser, said she recently sold a $10,000 claim that Eagle Food Centers held against Interstate for 77 cents on the dollar.

'On the Way Up'

"I think we got a price that was on the way up," said Watson, an adviser at the restructuring firm Walker, Truesdell & Associates. Watson said other claims had been selling for as little as 50 cents on the dollar.

Yucaipa is trying to repeat the success it had with bankrupt car-hauler Allied Holdings Inc. where a deal with the Teamsters gave it control of the company.

At Allied, Los Angeles-based Yucaipa negotiated concessions half the size managers said were necessary for the company to exit bankruptcy. As part of the deal Chairman Robert J. Rutland, grandson of the trucker's founder, was ousted, shareholders got nothing and creditors collected at least 50 cents on the dollar.

Yucaipa and the Teamsters "obviously have some sort of symbiotic relationship," said Peter Wolfson, a lawyer for Allied shareholders who currently represents a committee of Interstate equity owners. "I just don't think that it makes sense for Yucaipa to be meddling with the ongoing labor negotiations."

Teamster Concessions

After Allied's bankruptcy reorganization plan won approval, creditors were able to sell their debt for 60 to 70 cents on the dollar, said David Keisman, a senior vice president in corporate finance at Moody's Investors Service in New York. That means the market put a higher value on Allied, and its debt, than the 50 cents on the dollar Yucaipa and the Teamsters predicted.

At Interstate, the Teamsters are again key. Jung says without wage and benefit concessions from them, he may liquidate the company. The company's largest cost is labor, according to a regulatory filing.

Interstate opposes Yucaipa because it says a deal that is too generous to workers would reduce creditor recoveries.

Silver Point's proposal, which is backed by JPMorgan Chase Bank and other secured lenders, will be difficult for Yucaipa to top, said Ken Smalley, an analyst at Seaport Group LLC, which trades distressed debt.

The support of the lenders "makes it tough for a second bidder to come in," Smalley said.

Shares Fell

The day Interstate announced the Silver Point proposal the company's stock price fell 77 percent to 15 cents a share, indicating the plan erased any expectations shareholders might get something back from the reorganization. Interstate shares were little changed at 9 cents in over-the-counter trading today.

Burkle has become a white knight to other labor unions. He worked with newspaper employee groups on possible bids for Dow Jones Co. earlier this year and McClatchy Inc. papers in 2006.

Yucaipa spokesman Frank Quintero, who wouldn't comment directly on Interstate, said Burkle's involvement with organized labor goes back to his days as a 13-year-old packing groceries. Today, Burkle's private plane sports the tail number 770BB, which stands for local 770, box boy, Quintero said. Burkle declined to comment for this story.

With its union connections, Jung says Yucaipa is trying to gain an advantage over investors who might try to buy the baker.

20,000 Union Workers

"That's what I saw Yucaipa wanting to do," Jung said in an interview. Eighty percent of Interstate's 25,000 employees belong to either the Teamsters or a union representing bakery workers.

The Teamsters continue talking to Yucaipa about the future of Interstate largely because of the success they had on the Allied bankruptcy, union spokesman David White said.

Creditors, who typically vote on any reorganization plan, don't know how much they might receive from Yucaipa or Interstate because neither side has released enough details.

The fact that Yucaipa is involved in the case is good for creditors, said Duncan Yin, who covered Interstate as a distressed debt analyst until 2005.

"Any time you've got an investor interested in a plan of reorganization, that is good for people who own claims," said Yin, who currently manages a hedge fund affiliated with Capital Group LLC.

Yucaipa has said only that it wants the chance to negotiate with the Teamsters, something it is officially blocked from doing by Interstate's insistence on a confidentiality agreement.

In the Allied Case, Judge C. Ray Mullins rejected allegations Yucaipa conspired with the Teamsters to deny shareholders a recovery.

Exclusivity

Former Allied Chairman Rutland lost the exclusive right to develop a bankruptcy plan, which gave Yucaipa an opening to file a proposal with the Teamsters. Jung is trying to avoid the fate of Rutland on Nov. 7 when Interstate asks U.S. Bankruptcy Judge Jerry W. Venters for more time to exclusively file a plan.

The Teamsters oppose the company's exclusivity request. While Venters hasn't allowed Yucaipa to play an official role in the case, that could change if Interstate loses the exclusive right to file a reorganization plan.

Management's opposition to Burkle might not be solely based on concern for creditors, said claims broker Steven Klenda of APS Capital Corp.

"People who are most interested in a debtor's plan are often the people who are going to lose their jobs," Klenda said.

(bloomberg.com)

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