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To the contrary, I think that distressed debt is a great part of the private equity business. The process you describe as "buying up the debt of failing compani
by ryanwaggoner 16y ago
To the contrary, I think that distressed debt is a great part of the private equity business. The process you describe as "buying up the debt of failing companies, taking them over for not paying, restructuring them, then relaunching" is ridiculously valuable and necessary for a functioning economy. What's your preferred alternative to the problem of failing companies?
- btilly 16y agoI agree that there is a necessary job there, but a lot of the problem they are "solving" is artificially created. You've got to look where they fit in the financial ecosystem. First one set of private equity folks come along, structure a deal, and leave a previously healthy company saddled with lots of debt. (Private equity folks make guaranteed money on the deal, everyone else bears risk.) If that company proves unable to handle it, the distressed debt folks come along, buy up the debt at a fraction of the price, take control of the company cheaply, then forgive much of the debt they bought. The now healthier company gets flipped back to the same private equity folks who ruined it in the first place who, as is their standard operating procedure, load it up with debt again. It is a magic cycle. Every iteration brings more pain and misery to the people working there, making the product worse, slowly bleeding the consumer base, but throwing off more profit for the private equity folks. And the sad thing is that the poor company didn't need to go through any of this. It started off fine and would be in better shape if the whole process hadn't ever started.