Hearthside enters into Restructuring Support Agreement

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Hearthside enters into Restructuring Support Agreement

25 Nov 2024

Joanie Spencer

Since 2008, Joanie Spencer has covered the retail and wholesale sides of the baking industry.
Serving associations such as the American Society of Baking (ASB) and BEMA, Joanie is also in demand as an industry presenter on bakery operations and trends. She holds a bachelor’s degree in communication from Rockhurst University and a master’s degree in journalism from the University of Missouri.

When she’s not running or playing soccer, Joanie spends her time with her husband and 11-year-old son.

DOWNERS GROVE, IL — Hearthside Food Solutions, a leading food contract manufacturer, announced it has entered into a global Restructuring Support Agreement (RSA) with key stakeholders, which includes filing voluntary petitions for prearranged Chapter 11 cases in the United States Bankruptcy Court. The RSA is intended to right-size the balance sheet, infuse the business with significant equity capital and position Hearthside for long-term growth.

To best serve its customer base and position itself for long-term growth, Hearthside plans to eliminate more than $1.9 billion of debt while securing $200 million of new equity capital at exit through the restructuring.

“Today’s announcement marks an incredibly important step forward for Hearthside, our valued customers and our dedicated team as we continue to transform our business for the future,” said Darlene Nicosia, CEO of Hearthside. “With a sustainable capital structure and a significant infusion of new capital to fund our long-term plan, we will be well-equipped to enhance our leadership in the food manufacturing industry as we drive continued innovation and growth.”

Hearthside noted that it received widespread support throughout its capital structure, including significant majorities of its first-lien lenders, second-lien lenders and unsecured noteholders, as well as its equity holders. The company has also filed a number of customary “First Day Motions” with the Court to facilitate the transition into Chapter 11 and ensure operations run smoothly during the process, including continuing to pay employee wages and benefits, maintaining customer programs and honoring obligations to vendors.

To fund operations without disruption during the Chapter 11 cases, Hearthside has filed a motion seeking approval of $300 million in debtor-in-possession financing, which includes $150 million of new money from existing lenders. Following Court approval, Hearthside anticipates the financing will provide ample liquidity to support its operations during the Chapter 11 process.

“With a sustainable capital structure and a significant infusion of new capital to fund our long-term plan, we will be well-equipped to enhance our leadership in the food manufacturing industry as we drive continued innovation and growth.” — Darlene Nicosia | CEO | Hearthside Food Solutions

The company has also provided a labor update during the transition. Since becoming the subject of a February 2023 New York Times expose raising labor concerns, Hearthside has faced extreme scrutiny from customers, media and certain governmental bodies.

Hearthside has consistently maintained its position that the allegations pertained to specific third-party staffing agencies with whom it has since cut ties, and the company has vigorously disputed the bases for the allegations.

Since then, the company has doubled down on strengthening and implementing best-in-class employment practices, including transforming its workforce to significantly minimize the use of staffing agencies and temporary labor. Today, the company does business with less than 10 agencies — compared to 48 previously — and roughly 10% of its current workforce is temporary labor, compared to nearly half previously.

“We have taken decisive action across our company to put our past challenges behind us and are encouraged by the improvement we have already seen in our employee engagement, organizational culture, and ability to deliver best-in-class, quality products and services that our customers can depend on,” Nicosia said.

In a press statement, Hearthside reiterated its commitment to maintaining a best-in-class workforce across its facilities, and, with an infusion of new capital through the financial restructuring process, plans to become even better positioned to continue investing in its labor practices.

The company plans to emerge from Chapter 11 in the first quarter of 2025. Additionally, it noted that its Interbake Canada operations are not part of the filing.

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