Private Equity-Backed Snack Maker Hearthside Files Bankruptcy

(Bloomberg) — Hearthside Food Solutions, a snack producer that was mired in a child labor scandal last year, filed for bankruptcy after struggling to refinance its debt. 
The privately-owned company, which makes food ranging from frozen burritos to crackers, filed for Chapter 11 in Texas on Friday, listing assets and liabilities of between $1 billion and $10 billion. Bloomberg had reported earlier this week that Hearthside was planning to file for bankruptcy. 
The company has entered into a restructuring agreement with its lenders and equity owners to “right size” its balance sheet, it said in a Friday statement. The deal will allow Hearthside to shed more than $1.9 billion of debt and get $200 million in new equity once it exits Chapter 11.
Hearthside also said it has also asked the court to approve $300 million in debtor-in-possession financing to support its operations through bankruptcy. About half of that will come from existing lenders. It aims to emerge from Chapter 11 in the first quarter of 2025, according to the statement.
Hearthside had been in talks to have its private equity owners hand over control of the company to creditors, Bloomberg reported in October. 
Hearthside, acquired by private equity firms Charlesbank Capital Partners and Partners Group Holding AG in 2018, came under increased security after the New York Times reported last year that the company’s processing plant in Grand Rapids, Michigan employed migrant children. The company at the time called the story a “mischaracterization.”
The US Department of Labor opened an investigation into Hearthside following the report, according to the Times. The company said it hired advisory firm KPMG LLP and law firm Paul Weiss, Rifkind Wharton & Garrison to review its practices. 
A Hearthside spokesperson on Friday said the company has never knowingly employed underage labor in its facilities, and has used all tools legally available, as mandated and administered by the federal government, to adhere to government regulations across its operations. Hearthside has also significantly reduced its use of staffing agencies and temporary labor, the spokesperson said.
Hearthside has been struggling with its cash-burning operations and poor earnings. In June, S&P Global Ratings downgraded Hearthside’s credit rating deeper into junk, citing “steep cash flow deficits” and the company’s inability to borrow more under its revolving loan.
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