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

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.

In the steel industry, Ross took control of the likes of LTV Steel and Bethlehem Steel during their bankruptcies in the early 2000's amid a U.S. industry downturn, and was able to score investment returns after both companies let billions in pension claims run onto PBGC's balance sheet.

A 2005 New York Magazine feature illustrates how Ross structured the bargain basement steel industry buyouts to see a financial reward, while both companies remain among the five biggest PBGC claimants.

During an election year appraisal of Bain Capital buyout investments under Mitt Romney, Bloomberg reported how the buyout firm wrenched out gains by socializing pension claims of companies like GS Industries, another failed steel company.

PBGC also stepped up to sweeten investments during the financial crisis. Failed Californian lender IndyMac Bank, bought by a consortium of private equity firms including Dune Capital Management and J.C. Flowers & Co., is a large PBGC claimant and its owners are poised to reap big gains in their FDIC-assisted investment

Meanwhile, in the auto bailout, Chrysler's hedge fund owner Cerberus Capital Management retained some equity in the company's businesses, which nearly recouped most of total losses in the failed investment. Much of Chrysler and General Motors (GM) post-bankruptcy ascendance can be attributed to the evisceration of billions in pension liability brokered by the government.

Media reports indicate Hostess brands may also find a corporate buyer from the likes of ConAgra Foods (CAG) or Mexican conglomerate Grupo Bimbo, among scores of potential bidders, and the company's CEO is confident of individual asset sales.

Amid a potential feeding frenzy for the snacks brands of Hostess, taxpayers may be the only ones fed losses by way of prospective PBGC claims.

-- Written by Antoine Gara in New York

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