WEEK AHEAD: Hostess to Hold First Bankruptcy Auction

  By Jacqueline Palank 
 

Hostess Brands Inc. will send its first group of brands, including Wonder Bread, to the auction block next week as part of its bankruptcy liquidation.

Flowers Foods Inc. (FLO), which makes Tastykakes snacks and Nature's Own bread, is set to lead off the bidding for the Hostess assets.

The Thomasville, Ga., company is offering up to $360 million for five Hostess bread brands, including Wonder Bread and Nature's Pride, as well as 20 plants and 38 depots.

In a separate bid, Flowers Foods has offered $30 million for Hostess's Beefsteak rye bread brand.

If Flowers loses the Wonder Bread assets to a rival, it would get a $10.8 million breakup fee. A loss at the Beefsteak auction would award it a $900,000 breakup fee.

A White Plains, N.Y., bankruptcy judge will consider approving the winning bids at a March 5 sale hearing.

Hostess will return to the auction block again in March, when it will seek to sell its cake brands, like Twinkie and Ho Hos, as well as such other bread brands as Sweetheart and Grandma Emilie's.

The Irving, Texas, company in November switched tracks to a liquidation from a restructuring after it failed to reach a crucial cost-cutting deal with the union representing its bakers.

School Specialty Inc. (SCHSQ) next week will seek final approval of financing to keep it operating in Chapter 11, although some creditors are floating a rival loan.

The seller of classroom supplies, curriculum and furniture sought Chapter 11 protection last month after negotiating two financing deals with its existing lenders: Bayside Capital offered a $50 million loan, while lenders led by Wells Fargo Capital Finance LLC provided a $175 million loan.

The loans require the company to sell itself by mid-April, and Bayside has offered to kick off the bidding at a March 27 auction with its offer to forgive $95 million in debt.

But School Specialty's unsecured creditors say the fast sale all but ensures Bayside will emerge the winner in a deal that won't raise the funds to pay off their claims. So some of those unsecured creditors, the company's bondholders, are working on a rival bankruptcy loan that wouldn't require a sale. Instead, the bondholders say they'll give School Specialty the time to determine whether a sale or standalone restructuring is the best option for the company and its creditors.

On Wednesday, defunct law firm Dewey & LeBoeuf LLP will seek the Manhattan court's approval of its plan to pay its creditors.

The plan, which Dewey negotiated with its secured and unsecured creditors, will distribute the proceeds of the wind-down Dewey began upon its collapse last May. Since then, the firm has worked to sell off its assets, collect outstanding legal bills and settle litigation.

One landmark deal, struck with several hundred former partners, will bring in more than $70 million.

Under the Chapter 11 plan, Dewey's secured lenders--J.P. Morgan Chase Bank (JPM), Citibank (C) and Bank of America (BAC)--are expected to recover between 46.8% and 76.7% of their $261.9 million in claims.

General unsecured creditors, whose exact claims currently aren't known, would receive a maximum recovery of 14.1% and a minimum of 5.25%.

Dewey filed for Chapter 11 bankruptcy liquidation last May 28 following a mass partner exodus and failure to find a partner to rescue the storied law firm.

-Write to Jacqueline Palank at [e-mail]

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