Please answer these question and write 3-4 paragraph for each question . The case is in the below .

Questions:

1. How might the way in which Hostess Brands Inc. grew have contributed to its eventual financial distress? Any personal suggestions would be beneficial here.
2. What are the primary objectives of the bankruptcy process? Speculate as to why this process may have failed in reorganizing Hostess Brands? Be specific with these.
3. The Hostess Brands Inc. case study illustrates options available to the creditors and owners of a failing firm. Describe the available options. How do you believe creditors and owners might choose from among the range of available options? Include some details here.
4. Financial buyers (both hedge funds and private equity investors) clearly are motivated by the potential profit they can make by buying distressed debt. Their actions may have both a positive and negative impact on parties to the bankruptcy process. Identify how parties to Hostess bankruptcy may have been helped or hurt by the actions of the hedge funds and private equity investors.
5. What types of businesses are most appropriate for Chapter 11 reorganization, Chapter 7 liquidation, or a Section 363 sale? What factor(s) drove Hostess into a Section 363 sale? Which party tends to have the greater advantage: the strategic or financial bidder in a 363 sale and why?
6. Comment on the fairness of the 363-auction process to Hostess shareholders, lenders, employees, communities, government, etc. Be specific.

Hostess Brands Liquidates in Bankruptcy .

Hostess Brands Inc. (Hostess), maker of the iconic Twinkies brand, filed for Chapter 11 bankruptcy on January 11, 2012, under the weight of a shift by consumers to healthier foods and failed new product introductions. Other contributing factors included a crushing debt burden, escalating pension and healthcare obligations, union work rule limitations, increasing fuel and ingredients costs, and the 20082009US recession. Hostesss product offering included such well-known brands as Twinkies, Wonder Bread, Natures Pride, Dolly Madison, Drakes, Butternut, Home pride and Merita. While each brand had a strong consumer following, the firm was an operational nightmare. Hostess consisted of a patchwork of disparate operations and work rules having grown through a series of acquisitions. Beginning with its founding as the Schulze Baking Company in 1927, acquisitions over the years resulted in 372 labor contracts, 80 separate health and benefit plans, 5,500 delivery routes, and vastly different production processes across its facilities. This marked the second time in which the firm entered the protection of the U.S. Bankruptcy Court. Notably the problems that forced the firm into bankruptcy the first time were remarkably similar to those triggering the second business failure. Weighted down by a balance sheet laden with debt and pension obligations and beset with costly labor rules and declining sales, Hostess Brands entered Chapter 11 bankruptcy protection in 2004. After nearly 5 years in bankruptcy, Hostess emerged in 2009 under the control of a private equity firm called Ripplewood Holdings LLC (Ripplewood), which invested $130 million in new capital in the firm. The emergence from bankruptcy was possible only after substantial concessions from the firms unions totalling $110 million in annual labor costs and from lenders. Hedge funds Silver PointCapital LP(Silver Point) and Monarch Alternative Capital LP (Monarch) agreed to provide a new secured loan of $360 million, forgive half of the existing debt, and to exchange the remaining debt for a payment-in-kind loan. Silver Point and Monarch are hedge funds focused on buying so-called distressed debt (i.e., debt of troubled firms that can be purchased at a steep discount from its face value). Despite this substantial financial and operational restructuring, Hostess sales continued to falter. Ripplewood injected another $60 million in the firm in 2011 consisting of new equity and subordinated debt. Silver Point and Monarch which owned 12.28% and 8.59% of the firm, respectively, together put in $30 million in 2011 and another $75 million after Hostess filed for Chapter 11 in early 2012 in debtor-in-possession financing. Efforts to negotiate additional union concessions stalled with the Hostess CEO leaving amidst acrimonious infighting between the unions and management. With its equity investment worthless and subordinated debt deeply underwater, Ripplewood stopped attending negotiating sessions with the unions, leaving only Silver Point and Monarch at the negotiating table. The firms would not invest more in Hostess without union concessions and proposed that the unions receive a 25% ownership stake in Hostess, board representation, and $100 million in subordinated debt in exchange for wage, benefit, and work rule concessions. Silverpoint and Monarch viewed such concessions as critical if a successful turnaround were to be achieved. Work rules made it difficult to improve productivity and spend money efficiently. With sales of $2.5 billion in 2011, Hostess lost $341 million. According to bankruptcy filings, the firm incurred $52 million in workers comp claims in 2011. Contractual obligations mandated a $31 million increase in wages and health careand other benefits for 2012. Work rules required cake and bread products to be delivered to a single retail location using separate trucks and drivers were not allowed to load the trucks themselves; workers who loaded cakes were not allowed to load bread. Such logistical limitations added to overall operating expenses. By September 2012, the Teamsters union agreed to lower pay and benefits but the Bakery Workers union rejected the deal. With the Teamsters union having agreed to significant contract concessions, the federal bankruptcy court gave Hostess unilateral authority to modify collective bargaining contracts. The court allowed Hostess to force the Bakers union to accept a new 5-year labor contract that included an 8% wage cut the first year, new pension plan restrictions, and a 17% increase in employee payments for healthcare coverage. These actions prompted the Bakery Workers union to strike on November 9, 2012. Despite warnings from the firm that it was about to file for bankruptcy, the strike continued forcing Hostess to shut downoperations. Rather than to reorganize under the protection of the bankruptcy court, Hostess sought liquidation. The firm used the bankruptcy process to escape all its past burdensome debts including the myriad union contracts, more than $2 billion in pension liabilities, and any need to retain factories. Unencumbered with liabilities, the Hostess brands could be sold at auction. The shutdownof Hostess entailed closure of 30 bakeries, 565 distribution centers, 5500 delivery routes, and 570 bakery outlet stores throughout the United States, and the phased layoff of 18,500 workers. Hostess stressed that it had to move quickly in the sale of its brands to capitalizeon the outpouring of nostalgia and media coverage surrounding its demise. The brands still had significant value. For 2012, Twinkies pulled in about $76 million, Hostess Donuts $385 million, and Hostess Cup Cakes $138 million. However, the longer Hostess cakes and breads were off store shelves, the more consumers would become accustomed to eating cakes and breads from competitors. The bankruptcy court approvedretention bonuses for workers required during the liquidation process. The announcement of the firms pending liquidation and the surrounding publicity that followed brought in more than 80 bidders in a few days. The Section 363 process began in early 2013 with the selection of so-called stalking horse bidders to establish a floor on prices bid for the various Hostess brands once the auction was underwayin February and March 2013. The assets that were put up for sale included a range of Hostess brands from Twinkies to Wonder Bread to real estate and baking equipment. Two private equity firms, C. Dean Metropoulos & Company and Apollo Global Management agreed to pay $410 million to buy the Hostess business, including Twinkies. Flowers Foods agreed to buy Wonder and Hostesss other bread businesses for $360 million and to pay $30 million for Beefsteak. McKee Foods paid $27.5 million for Drakes bread. If those firms making stalking horse bids were outbid by others during the auction, the winning bidders would have to pay the stalking horse bidders a breakup or topping fee. Secured creditors have four options to recover all or a portion of their loans by pursuing the sales of collateral underlying their loans under the U.S. Bankruptcy Code or out of court sales under state law according to Article 9 of the Uniform Commercial Code. The U.S. Bankruptcy Code allows for debt recovery according to Chapter 11 (a court-approved plan of reorganization), Chapter 7 (trustee directed liquidation), and under Section 363 sales (expedited court sponsored auctions) of the U.S. Bankruptcy Code. Article 9 determines the legal right of ownership under the Uniform Commercial Code governing secured transactions and determines the legal right of ownership if a debtor does not meet their obligations. Collateral can include receivables and business inventory. If an individual has their computer serviced but fails to pay upon completion of the repairs, the firm doing the repairs may keep the computer. Article 9 sales require that a secured lender may dispose of collateral in a commercially reasonable manner. However, such a process may be slow due to lengthy and costly disputes over what constitutes a commercially reasonable method. Such sales also require lenders selling collateral to notify the debtor, any secured parties with interests in the collateral junior to the seller (second mortgage holders), and any other secured party with an interest in the collateral. All this adds to the cost and length of time to implement the process. Nor does Article 9 cleanse collateral of all liens such as product liability and environmental claims. Chapter 7 puts the debtors business in the hands of a trustee to operate the business. The adoption of Chapter 7 announces to the world that the business is dead making the sale of the assets as a going concern impossible and effectively forcing the sale of the assets independently. Going concern refers to a company having the resources needed to continue to operate indefinitely. In contrast, Chapter 11 facilitates the sale of the debtor assets as a going concern by allowing the debtor to continue operate the business while foregoing payments to creditors. A creditor has a better chance of recovering accounts receivable under Chapter 11 because relationships are seen as on going. Moreover, Chapter 11 requires the judge to disperse the proceeds of any payments to creditors according to the absolute priority rule which places secured parties first in line for distribution under a court-approved or confirmed reorganization plan. However, Chapter 11 is an expensive process such that any value recovered in excess of the liquidated collateral is used to pay administrative fees rather than to compensate unsecured creditors. When a business is unlikely to reorganize successfully in Chapter 11 but has assets than have a going-concern value that exceeds shutdown value, a Section 363 sale may be the best option for the secured creditor and debtor. The 363 sale offers a rapid resolution through auction and the ability to deliver assets free and clear of all liens under a court order and establishes a bidding procedure to maximize value. Was the auction process sanctioned under Section 363 of the bankruptcy code the right one for Hostess? Time appears to have been a critical factor. The intangible value of the Hostess brand would diminish with time. This process allowed for a rapid sale of the firms operating assets, perhaps at the best prices possible at that time. While secured lenders were able to recover much of what they were owed, unsecured creditors and shareholders received nothing. Contracts such as those with labor unions and property leases were dissolved. While some jobs were lost, the operations that were acquired through the auction process did enable many of the former Hostess employees to retain their jobs. However, salary and benefits were slashed and work rules made less restrictive. For these reasons, a 363 sale appeared to be the best option for debtors to recover as much of what they were owed by Hostess as possible. However, the business as a going concern was lost. The impact on other stakeholders varied widely from shareholders receiving nothing to workers in some cases retaining their jobs but often with much less compensation. The Hostess saga illustrates that the bankruptcy is not a panacea as it was never intended to meet the needs of all those involved in the process. As in most situations, there are winners and losers.