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February 4, 2009 8:12 PM

Skadden Saves Twinkies from Chapter 11, Puts Spectrum Brands in Bankruptcy

Posted by Brian Baxter

One assignment ends, another begins.

On a day when Skadden, Arps, Slate, Meagher & Flom helped bring Interstate Bakeries--producer of Dolly Madison cakes and pastries, Hostess Twinkies, and Wonder Bread--out from four years of bankruptcy proceedings, the firm advised Atlanta-based battery maker Spectrum Brands on its filing for Chapter 11 protection.

"It was a long and often arduous journey," says J. Eric Ivester, the Skadden corporate restructuring partner who was tapped to advise the Kansas City, Mo.-based company when it went bankrupt in September 2004. "[But Interstate's] emergence is an example of how restructurings can get done even during these difficult economic times."

Interstate is one of the first major reorganizations to emerge from bankruptcy since the collapse of Lehman Brothers in September. Interstates's exit also occurred just days before the arrival of a February 9 deadline that would have seen the company's debtor-in-possession financing from JPMorgan Chase expire along with financing commitments from several investors.

Interstate received permission last month from the U.S. bankruptcy court in Kansas City to pay Kasowitz, Benson, Torres & Friedman $250,000 to serve as special litigation and conflicts counsel as a means of encouraging parties that committed funds to a $600 million financing plan to pay up.

But Ivester and the Skadden team managed to secure a $130 million equity investment from New York-based private equity firm Ripplewood Holdings and an additional $459 million in loans to save the maker of sugary snacks.

The Skadden attorneys working on the matter included M&A partner L. Byron Vance III, corporate restructuring chief J. Gregory Milmoe, corporate restructuring partner Anthony Clark, real estate partner Marian Wexler, and banking and institutional investing partner Peter Neckles. (The firm recently authored a memo stating that while scarce liquidity makes Chapter 11 emergence difficult, opportunities remain for distressed investors.)

Ripplewood invested $44.2 million in cash and $85.8 million in convertible debt for a 50 percent ownership stake in Interstate.

The PE firm was advised by Cravath, Swaine & Moore M&A partner Peter Wilson, corporate and restructuring partners Richard Levin and Paul Zumbro, tax partner Michael Schler, senior corporate attorney Kimberly Grousset, senior restructuring attorney Robert Trust, and associates Christopher Fargo, Rene Paula-Molina, Femi Giwa, Wendy Ng, Lynne Lacoursiere, and Matthew Morreale. Ripplewood will have the opportunity to purchase an additional 15 percent of Interstate at a later date if it so chooses.

Interstates' reorganization plan calls for $354 million in financing from hedge funds Silver Point Capital and Monarch Master Funding Ltd. The funds were represented by Paul, Weiss, Rifkind, Wharton & Garrison bankruptcy and reorganization partner Alan Kornberg, finance partner Valerie Radwaner, and reorganization counsel Alice Belisle Eaton. (Kornberg was named a Dealmaker of the Year by The American Lawyer in 2003 for his representation of the California Public Utilities Commission in the bankruptcy of Pacific Gas and Electric.)

Fairfield, Conn.-based General Electric Capital provided an $105 million revolving loan with JPMorgan Chase contributing a $229 million letter of credit facility. Simpson Thacher & Bartlett bankruptcy and restructuring partner Kenneth Ziman in New York and Bryan Cave corporate reorganization partner Gregory Willard in St. Louis advised JPMorgan Chase.

The lenders will split ownership of Interstate with Ripplewood. As part of the deal, Interstate's current shareholders will be wiped out, with all of the company's shares canceled in a series of SEC filings on Tuesday.

"Many sacrifices were made along the way," says Skadden's Ivester, "especially by the company's 22,000 employees." The Skadden team renegotiated more than 400 collective bargaining agreements with the Teamsters and seven other labor unions whose members were asked to make substantial concessions in order to save their jobs.

Skadden's job for Interstate turned out to be a profitable one. Bankruptcy documents show that the firm, a perennial Am Law 100 leader in gross revenues, reaped more than $40 million in fees over the four-and-a-half years that Interstate was in Chapter 11.

But that's a small price to pay in order to save the Twinkie.

"Twinkies have been around for almost 80 years and we are happy that we could play a part in keeping them on shelves and in cupboards for many more years to come," Ivester says. (Contrary to popular belief, Twinkies don't have a longer shelf-life than uranium-232.)

As Interstate wrapped up, another troubled company moved into the firm's restructuring lineup.

On Tuesday the nation's third-largest battery maker, Spectrum Brands, announced that it wouldn't make  a $25.8 million interest payment on its $4.4 billion debt and filed for bankruptcy. Skadden has been advising Spectrum, known for its Rayovac battery and Remington razor brands, over the past several months as the company sought to refinance its debt. The company has secured agreements with most of its bondholders to trim its debt obligations.

Skadden corporate restructuring partner D.J. "Jan" Baker, banking and institutional investing partners Peter Neckles and Rossie Turman III, M&A partner Margaret Brown, and corporate restructuring counsel Rosalie Gray are advising Spectrum.

Spectrum has also turned to Vinson & Elkins national restructuring and reorganization partner Harry Perrin and commercial litigation and business bankruptcy partner D. Bobbitt Noel, Jr.

Sutherland Asbill & Brennan has been retained as conflicts counsel with William Kingman from the San Antonio-based Law Offices of William B. Kingman serving as local counsel.

None of the firms had yet to file billing information with the U.S. bankruptcy court in San Antonio.

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