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.

Question

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The Answer is Hedge funds and other investor groups provide liquidity in the distressed debt and equity markets by enabling those creditors and shareholders desirous of selling their claims on the failing firm to cash out. Moreover, these financial investors may provide a more vigorous competitive bidding environment during any auction that might be held as a result of the bankruptcy process. Finally, the presence of financial buyers may expedite the process for transferring the failing firm's assets into the hands of those who can manage them more efficiently. However, the focus of financial investors on short-term profits may force the debtor firm's trustee to rush the development of a reorganization plan to create a viable firm, resulting in a plan that is unacceptable to the bankruptcy court judge and a majority of other creditors. As a result, Chapter 7 or a 363 sale may be viewed as the only viable options.

Financial Buyers (Both Hedge Funds and Private Equity Investors) Clearly