Baking firm’s credit reviewed because of pressure on profits

Thursday, April 10, 2003 | 11:08 a.m.

SUN WIRE REPORTS

KANSAS CITY, Mo. -- Interstate Bakeries Corp., the maker of Hostess Twinkies and Wonder bread and operator of a new plant in Henderson, may have its credit rating cut to junk by Standard & Poor's because of falling sales and profit.

The company is rated BBB-, the lowest investment-grade level. Interstate Bakeries had about $587 million of bank debt, Interstate Bakeries spokesman Mark Dirkes said. It doesn't have any bonds outstanding.

Interstate Bakeries said Tuesday that it had a third-quarter loss of $6.75 million as energy and health-care costs rose and competition from chains such as Krispy Kreme Doughnuts Inc. slowed sales. Interstate Bakeries is in talks with lenders to avoid violating financial covenants. The company expects its request to revise the covenants to be addressed in a couple of weeks.

Shares of Kansas City-based Interstate Bakeries fell 32 cents to $9.98 at 4:16 p.m. in New York Stock Exchange composite trading Wednesday. They've dropped 61 percent in the past year.

A junk rating usually increases a company's borrowing costs as investors demand higher yields to compensate for the increased risks they take for owning the debt.

The loss was Interstate Bakeries' first quarterly loss in at least a year. The company, the largest U.S. baker and distributor of bread and sweet goods, had net income of $16.7 million in the third quarter of last year.

Interstate last month announced plans to close its bakery in Boise, Idaho, and transfer production to its bakeries in Salt Lake City and Ogden, Utah.

The Salt Lake and Ogden bakeries currently produce bread and snack cakes for the Las Vegas market, but the company plans to open a new plant this month in Henderson to make bakery goods for the Southern Nevada market, a spokesman said.

Utah's bakeries will have excess capacity, enabling them to absorb the work of the Boise bakery.