Hostess is bankrupt … again

July 26, 2012: 5:00 AM ET

By David A. Kaplan, contributor

Twinkie the Kid, a Hostess mascot, as interpreted by Fortune

FORTUNE — Those Twinkies on your cupboard shelf may last forever. But the company that makes them may not.

Hostess Brands — the owner of such iconic lunchbox snacks as Ding Dongs, Ho Hos, Suzy Q’s, Dolly Madison Zingers, and Drake’s Ring Dings, as well as Wonder Bread and the “Golden Sponge Cake with Creamy Filling,” the 150-calorie food-science marvel called the Twinkie that drove Woody Harrelson mad in Zombieland — is in federal bankruptcy court. Again. It’s the second time in a decade — which is why bankruptcy wags say the company is in “Chapter 22” rather than merely Chapter 11. Loaded down, astonishingly, with nearly $1 billion in debt, privately held Hostess faces oblivion if its creditors, owners, and unions can’t agree on how to restructure.

So far, in a courtroom near Manhattan and in a negotiating room in downtown Washington, they haven’t come close, although a deal could happen even as you read this. The dramatis personaeare impressive: the Teamsters; two large hedge funds, Silver Point Capital and Monarch Alternative Capital; and the private-equity firm Ripplewood Holdings. In an acrimonious behind-the-scenes war — refereed by a federal judge — they wage hostilities over who will get what crumbs from a disintegrating corporate cookie; whether that business can and should be resuscitated; the degree to which fabulous pension plans are anachronistic; whether promises made in collective bargaining ought to be sacrosanct; and just how important it is to save 15,000 union jobs. “There aren’t great options here,” former U.S. House Majority Leader Dick Gephardt told Fortune. Gephardt is now a lobbyist and consultant with connections to Hostess and the Teamsters. “People will have to pick the one that’s a little bit better.”

The Hostess story is a microcosm of larger economic and political issues on the national stage, including the perils of debt and the inertia of unions on workplace reform. It unfolds during an electoral campaign in which President Obama is seeking to make an issue of the supposed predatory excesses of private investment funds, linking Mitt Romney’s career at Bain Capital to the destruction of jobs.

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