4 ms·

But who is making these loans to companies that will be obviously unable to meet their payments? I never saw that part in the PE-sinks-companies story properly

• clairity 7y ago
  those loans are made as much on the relationship with, and past performance of, the PE firm, as it is on the fundamentals of the turnaround plan.
• charlesdm 7y ago
  Who? Easy: banks. Bank debt generally has first call in the event of a liquidation, so if everything goes to hell the assets will be liquidated and banks will be the first to be paid back. They likely don't end up losing a lot, if anything at all. The article makes it seem super obvious that these deals won't work out. But that is actually not the case. Many / most PE deals actually do work out, and end up making the sponsors a lot of money. And why would banks allow this? Because private equity are huge profit drivers. They use lots of debt. They also acquire many companies, so there is an ongoing relationship.