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The part I don't get is how Cerberus made money. It seems like it was a zero-sum for Cerberus. They loaned the holding company 225M, and presumably got that mon

The part I don't get is how Cerberus made money. It seems like it was a zero-sum for Cerberus. They loaned the holding company 225M, and presumably got that money back through the holding buying the stock back from Cerberus after the holding sold the 11% corp. bonds. Is it that between when the holding bought the stock back from Cerberus and Cerberus (via the holding) sold the bonds Cerberus had control of Remington (via the holding stock) and therefore effectively sold Remington's assets, paying themselves through the holding's stock. Then, when Remington was valueless, the holding bought the stocks back from Cerberus as if Remington still had value leaving the bond holders hanging? That's such a dumb scam. Why would anyone buy those bonds, and how was Remington able to get a loan to buy the holding's stock if Cerberus raided it?

CalChris 7y ago
Cerberus buys Remington for $118M in cash and assumes $252M in Remington debt. Except that it wasn't Cerberus, it was a Cerberus subsidiary S which Cerberus owned with stock X. Then Remington borrowed $225M which it transferred to S which then bought back its stock X from Cerberus. Cerberus is then out of the transaction with $225M - $118M. Remington + S (which Cerberus no longer owns) has $252M + $225M in debt.
- sigstoat 7y ago
  > Then Remington borrowed $225M which it transferred to S which then bought back its stock X from Cerberus. hmm. so, who is willing to loan Remington $225M in that situation? it seems like "recently bought by private equity company known for shenigans" would discourage banks and prospective bond purchasers?
  - CalChris 7y ago
    the holding company offered a generous interest rate of around 11 percent. When the interest payments were due, the holding company paid them not in cash but with paid-in-kind notes, that is, with more debt. Who could refuse such a deal?
    - sigstoat 7y ago
      > In 2010, Cerberus had the holding company borrow $225 million from an undisclosed group of lenders, most likely hedge funds. [...] ah, thank you for pointing that out. but then: > In April 2012, Cerberus did something fateful, which probably seemed smart at the time. It had Remington borrow hundreds of millions of dollars and use it to buy the holding company’s debt hm so the first set of lenders were paid off. did the second set get similar terms?
cascom 7y ago
My reading (which is not helped by the fact that the reporter appears more or less financially illiterate from a corporate finance perspective) is that Cerberus essentially took $225m out of the company (saddled the company with expensive debt). This had the effect of de-risking their equity investment (as they essentially got their money out) but making the company very levered. The net effect was that now Cerberus had a call option on Remington, if things went well they'd make a ton of money, if things went south, it would be the debt holders issue, but they would't "lose" as they'd recouped their initial investment

CalChris 7y ago

Cerberus buys Remington for $118M in cash and assumes $252M in Remington debt. Except that it wasn't Cerberus, it was a Cerberus subsidiary S which Cerberus owned with stock X. Then Remington borrowed $225M which it transferred to S which then bought back its stock X from Cerberus. Cerberus is then out of the transaction with $225M - $118M. Remington + S (which Cerberus no longer owns) has $252M + $225M in debt.

sigstoat 7y ago
> Then Remington borrowed $225M which it transferred to S which then bought back its stock X from Cerberus. hmm. so, who is willing to loan Remington $225M in that situation? it seems like "recently bought by private equity company known for shenigans" would discourage banks and prospective bond purchasers?
- CalChris 7y ago
  the holding company offered a generous interest rate of around 11 percent. When the interest payments were due, the holding company paid them not in cash but with paid-in-kind notes, that is, with more debt. Who could refuse such a deal?
  - sigstoat 7y ago
    > In 2010, Cerberus had the holding company borrow $225 million from an undisclosed group of lenders, most likely hedge funds. [...] ah, thank you for pointing that out. but then: > In April 2012, Cerberus did something fateful, which probably seemed smart at the time. It had Remington borrow hundreds of millions of dollars and use it to buy the holding company’s debt hm so the first set of lenders were paid off. did the second set get similar terms?

cascom 7y ago

My reading (which is not helped by the fact that the reporter appears more or less financially illiterate from a corporate finance perspective) is that Cerberus essentially took $225m out of the company (saddled the company with expensive debt). This had the effect of de-risking their equity investment (as they essentially got their money out) but making the company very levered. The net effect was that now Cerberus had a call option on Remington, if things went well they'd make a ton of money, if things went south, it would be the debt holders issue, but they would't "lose" as they'd recouped their initial investment