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Something does not add up. Banks would not lend to PE firms of they would all then go on to default.
by whatshisface 3y ago
Something does not add up. Banks would not lend to PE firms of they would all then go on to default.
- Spooky23 3y agoIt’s syndicated. The initial lenders make money off of a variety of tax and other schemes.
- whatshisface 3y agoThat's missing a lot of steps... Like how to profit by not being paid back for the money you loaned!
- mrcode007 3y agoIt’s siphoned off the acquisition target
- adgjlsfhk1 3y agothe business goes bankrupt and the bank is ahead of customers and employees in line for who gets paid first.
- whatshisface 3y agoSo the scheme is to get in debt to unsophisticated lenders (employees and customers), take the money out, and finally default?
- deleted 3y ago[deleted]
- Spooky23 3y agoThe initial lenders aren't idiots. This is a multi-billion dollar business. They sell the obligation to another sucker, who will often bundle it with a bunch of other debt (good or bad) and sell it to institutional investors. Your 401k in 2008 or whatever had some shitty balanced fund that held 0.5% of assets in some toxic shit like Sears/K-Mart for the "high yield" portion of the fixed income component. So you make some money on government, agency and Apple/Exxon bonds, and get a high yield on K-Mart that goes poof a year later.
- boeingUH60 3y agoPlease explain these mysterious tax schemes you’re hinting at…
- gumby 3y agoBanks get their money back. Debt is second in line (after taxes) in bankruptcy.
- tome 3y agoYou're completely right that it does not add up. PE detractors really need to be able to explain how this observation fits in with their analysis.
- wewxjfq 3y agoThe companies have to refinance their debt perpetually to avoid default, which is where the banks make money. Also, that debt will then be repackaged and sold to others, so the banks won't be the bag holders.
- tome 3y agoThat's just begging the question. Why are the "others" buying?
- ImPostingOnHN 3y agoIt's been explained multiple times in this thread. tl;dr: the "observation" is made-up and false.
- tome 3y agoSomehow I haven't been able to find an explanation that I find convincing.
- ImPostingOnHN 3y agoGiven how many people explained the same thing, that lack of understanding may be more attributable to you than to everyone else. In any case, I and several others were able to find many, so it's okay that you weren't. Sometimes a person who has made up their mind and doesn't want to change it, ignores anything that might, and further effort committed to them is just a lost cause.
- tome 3y agoThanks for the reassuring words. Can you point to an explanation you find convincing?