Twinkies Defense Is Private Equity's Pension Offense: Street Whispers

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For instance, in Hostess Brands Jan. 2012 bankruptcy filing , the company's biggest unsecured creditor was The Confectionery Union & Industry International Pension Fund, a unionized employee plan with a near $944 million pension claim.

Further down the list of financial losers in Hostess Brands bankruptcy and potential dissolution are the company's hedge fund investors, which include Monarch Alternative Capital , Ripplewood Holdings and Silver Point Capital .

The size of the near $1 billion union pension claim is likely, in part, because Hostess's hedge fund owners stopped contributing to the company's pension plan in August, as a result of bitter labor negotiations and deteriorating finances.

A look through the PBCG's claims list highlights scores of failed companies like Friendly's Ice Cream, Eddie Bauer and parts supplier Delphi Automotive (DPG) , which remain large investments of hedge funds and private equity firms after the agency absorbed pension obligations.

A Monday report from Fortune Magazine indicates private equity firm Sun Capital might bid on Hostess Brands as a going concern. However, the report doesn't specify how pension obligations would be dealt with following the Friday termination of employee plans.

Sun Capital's interest may very well underscore how private equity firms use PBGC guarantees to pave the way for profitable investments. In January, the Center for Economic Policy Research detailed how Sun Capital used Friendly's Ice Cream's 2011 bankruptcy to wipe 6,000 employee pensions from the company's books. In that deal, the PBGC accused the buyout firm of fraud.

Law firms such as McDermott Will & Emery see a different Sun Capital deal involving milling company Scott Brass and a legal suit with a Teamsters pension as a potential blueprint for how to shirk pension liability in buyout investments.

On Monday, Flowers Foods (FLO) increased its line of credit, in a move analysts speculated might pave the way for a bid on some Hostess assets. Pabst Blue Ribbon owner C. Dean Metropoulos & Co. is also rumored as an interested party, among scores of prospective bidders for Hostess or its individual brands.

Regardless of how or whether Hostess Brands will be liquidated, the dance between investors and the renegotiation of employee compensation is in line with trends that already put taxpayers at risk of assuming PBGC claims.

Hedge funds like Elliott Management , Silver Point Capital and Paulson & Co. emerged from Delphi's 2009 bankruptcy exit as the company's largest investors. For is part, Delphi emerged as PBGC's second largest claim, with a $6.38 billion pension liability.

Sun Capital remains a top Friendly's investor, after the company's late 2011 bankruptcy put pension claims onto PBGC's books and the buyout firm re-acquired the company in a bankruptcy court. At Eddie Bauer, the story is similar.

Some investors like Wilbur Ross of WL Ross & Co. even appear to have made a career of buying up companies that have saddled PBGC with billions in claims.