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Mid-market defense contractors as well as media and coal companies could be at risk of tumbling into bankruptcy in 2013, New York University Prof. Edward Altman said yesterday, Reuters reported. With the U.S. government mulling significant cuts to the defense budget, smaller companies that contract with the government for defense projects could suffer, Prof. Altman said. He also said that the coal industry is expected to continue to suffer as natural gas remains a cheaper energy alternative. One major player in that industry - Patriot Coal Corp - filed for bankruptcy last year, blaming in part the glut of natural gas. Additionally, Altman said that media companies will also face challenges as specialized online media outlets gain strength.

Hostess Brands Inc.'s bid to sell its bread brands to Flowers Foods Inc. has hit a roadblock with unsecured creditors objecting to the break-up fees Flowers is entitled to for being appointed as the stalking-horse bidder, Reuters reported yesterday. The break-up fees is too high and contains an unusual "most favored nation" provision that gives Flowers a windfall without conferring an equal benefit to Hostess, a committee representing unsecured creditors said in its objections filed yesterday. Flowers on Jan. 11 agreed to buy Wonder and other well-known bread brands from Hostess for $360 million as well as its Beefsteak brand for another $30 million. The Flowers purchase is subject to higher bids at a court-supervised auction and the company is entitled to a break-up fee of $12.6 million for the bread brands and $1.05 million for the Beefsteak brand.

C. Dean Metropoulos & Co. said that it plans to bid for the cakes business of bankrupt Twinkies maker Hostess Brands Inc. with Apollo Global Management, Bloomberg News reported yesterday. The cake brands of the 82-year-old maker of Ding Dongs, Ho Hos and Drake’s Devil Dogs had drawn multiple bidders, Hostess lawyers said at a December court hearing. Potential buyers separately were interested in other Hostess products or manufacturing plants, according to Hostess. Hostess announced in a Jan. 11 statement that Flowers Foods Inc. is the lead bidder for most of the assets of its bread-baking operations.

INTL FCStone said that it will appeal a federal court ruling ordering it to return $15.6 million to the trustee overseeing the bankruptcy of Sentinel Management Group, Reuters reported on Friday. FCStone, a New York-based commodities brokerage with many farmers for clients, had to return the funds to the trustee because a distribution to former Sentinel clients was unfair, U.S. District Judge James Zagel ruled. Judge Zagel on Thursday ordered FCStone to post an $8 million cash deposit with the U.S. Circuit Court for the Northern District of Illinois pending a judgment in the appeal. Sentinel managed investments for clients, including FCStone, until it collapsed in 2007, when prosecutors say that executives moved customer money out of protected accounts to be used as collateral for loans to Sentinel's own trading operations.

The union and pension fund for Hostess Brands Inc. has hired Gordian Group to help preserve jobs and workers' benefits at the bankrupt maker of Twinkies snack cakes as Hostess negotiates with buyers, Reuters reported on Sunday. New York-based Gordian, which has no institutional loyalties to funds or bondholders in Hostess, will provide conflict-free advice for the welfare of the company's workers, The Bakery and Confectionery Union and Industry International Pension Fund (Bakers Fund) said. Mexico's Grupo Bimbo and a partnership between Apollo Global Management and veteran food executive C. Dean Metropoulos are among the leading candidates to buy Hostess Brands Inc's snack cake brands. In a separate announcement earlier this month, Hostess said Flowers Foods agreed to pay $390 million for Hostess's Wonder and other bread brands, including Nature's Pride and Butternut. That sale is still subject to a court-supervised auction.

Bankruptcy Judge Stuart Bernstein reserved judgment on Thursday in a hearing regarding the future of Hawker Beechcraft’s three pension plans, the Wichita Eagle reported on Friday. A settlement has been reached with an ad hoc retiree committee of salaried employees, the company said. The small group opposed the Pension Benefit Guaranty Corp.’s takeover of its plan, saying their benefits would be substantially reduced if the judge approved the takeover. The ad hoc committee is made up of nine or 10 retirees, but the settlement covers about 70 former salaried employees whose benefits would be reduced under PBGC caps, the company said. Other groups of retirees’ monthly benefits would not be reduced by the change because their benefits fall below the caps.

Education Holdings 1 Inc., the test-preparation company formerly known as Princeton Review, filed for bankruptcy protection, a month after settling a fraud lawsuit with the U.S., Bloomberg News reported yesterday. Education Holdings listed liabilities of $100 million to $500 million, as well as $100 million to $500 million in assets, in court documents filed yesterday. The company filed a pre-packaged chapter 11 plan that it said has already received approval from some creditors. Senior secured claim holders, who are owed at least $36.3 million, second-lien facility claimants due $7 million and other note holders owed more than $110 million will be allowed to vote on the plan submitted today as the proposal impairs their claims, according to a court filing.

Atari SA's U.S.-based video-game-making businesses filed for chapter protection with the intention of separating from the unprofitable French parent and seeking independent funding, Bloomberg News reported yesterday. New York-based Atari Inc., maker of video games “Pong” and “Asteroids,” as well as affiliates Atari Interactive Inc., Humongous Inc. and California U.S. Holdings Inc., asked to be jointly administered in filings today in bankruptcy court. Atari was founded in 1972 and became a pioneer in arcade and video games. Today it lags behind game-making giants such as Activision Blizzard Inc., the world’s largest by sales, and Electronic Arts Inc. The move to separate the U.S. business comes after the parent company Atari said in December it was strained for cash. The French parent, which has not made a profit since 1999 despite asset sales and restructuring, forecast a “significant loss” in 2012-2013, and said it would weigh all means of raising cash and had been talking to potential investors. According to its chapter 11 petition, Atari owes $10 million to $50 million to at least 200 creditors and possibly as many as 999. It reported assets of $1 million to $10 million.

A Goldman Sachs Group Inc. lawyer told a federal jury the founders of speech-recognition pioneer Dragon Systems Inc. are scapegoating the investment bank for their own mistakes in a $580 million all-stock sale rendered worthless when the buyer was exposed as a fraud, Bloomberg News reported today. In closing arguments yesterday in Boston federal court in a lawsuit accusing Goldman Sachs of negligence, the attorney said Dragon co-founder Janet Baker and Chief Financial Officer Ellen Chamberlain ignored the bank’s advice to hire accountants to further vet Belgium-based suitor Lernout & Hauspie Speech Products NV and rushed the deal amid Dragon’s cash-flow problems in 2000. Donovan blamed Baker, also Dragon’s former chief executive officer, for negotiating a change from a half-cash/half-stock deal to an all-stock deal without consulting the banking team. Lawyers for Dragon argued New York-based Goldman Sachs committed gross negligence, committed misrepresentation through key omissions and should have stopped the deal because of unanswered questions about Lernout & Hauspie’s revenue.

Just out of bankruptcy, Tribune Co. intends to drop the bulk of some 170 lawsuits that targeted senior media executives who cashed in on the going-private deal that ruined the company's finances, Dow Jones Daily Bankruptcy Review reported yesterday. The in-court announcement on Wednesday came as Tribune moved to take control of part of the flood of litigation touched off by its 2008 collapse into chapter 11, which happened less than a year after a leveraged buyout. Lawsuits will continue against upper-echelon executives such as former Chief Executive Dennis FitzSimons, who pocketed $47 million out of the deal, court papers say. Tribune's chapter 11 plan divided the litigation spoils of the failed LBO, giving creditors the right to chase the big-ticket causes of action against top-ranking insiders involved in the 2007 LBO. Most of that action is in a New York court, with creditors relying on the findings of a bankruptcy probe that found the taint of fraud on part of the LBO.