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Private equity itself is really not a problem - there are plenty of private equity transactions that more or less function like they are supposed to: buy up a s

Private equity itself is really not a problem - there are plenty of private equity transactions that more or less function like they are supposed to: buy up a struggling company and turn them around. (It should also not be a surprise that struggling companies are also more likely to go bankrupt or layoff employees). Most of the problems that come from private equity come specifically from leveraged buyouts - aka when private equity... provides no equity! These deals are unbelievably slimy by nature - in almost no other sector of the economy would we tolerate them. The last thing a struggling company needs is to take on a massive load of debt, just to change to owners who have no skin in the game!

MattGaiser 3y ago
What I would like to be explained is who is lending them the money. In the article, they went bankrupt with 7 billion in debt. Someone isn't getting that money back. Whoever gave them the money evidently gave it to them unsecured as well, as the PE company ran off with the buildings. Lender gave some very generous terms here evidently.
- legitster 3y ago
  https://www.bloomberg.com/news/articles/2024-02-01/risky-borrowers-storm-loan-market-for-once-unthinkable-savings https://www.bloomberg.com/news/articles/2024-02-01/risky-bor... The fees on this kind of debt are incredibly high, and banks are kind of desperate right now for higher interest loans. I think banks kind of have a "fool me twice, shame on me" attitude when it comes to bad loans - if they are adjusting the fees accordingly for the risk they should (theoretically) be fine on average in the long run.
- s1artibartfast 3y ago
  It isnt very different than an auto loan. A bank gives you money to buy it, knowing full well that the value will only go down after you drive it off the lot. The car is collateral for the loan, and if you pay a high enough premium, the bank may accept the car as the only collateral. The bank has an actuarial team that models the rate of loan defaults and car crashes. Back to the real examples, banks invest in leveraged buyouts because on average, they make more money than they lose.
s1artibartfast 3y ago
I dont really see the issue with leveraged buyouts. It is basically the same as banks buying a company and paying the equity firm for management. >The last thing a struggling company needs is to take on a massive load of debt, just to change to owners who have no skin in the game! This depends on your the goal. The owner of the struggling company wants out, and this is their exit. In some cases the purpose is simply to pay someone shut down the company in the most profitable way possible, which is a completely legitimate financial goal. One analogy is someone buying a car because the market value is less than they can get by driving it until it dies and then selling off the parts. It is normal to buy assets you know will depreciate to zero, as long as you get more value than the price.
sirspacey 3y ago
I’ve yet to meet someone with experience in dealing with PE who didn’t find it anything other than a “gut and pump” arrangement. The myth of PE creating operating efficiency is as necessary as VCs “adding value.” Having seen the ops behind the curtain, the skepticism on those claims is wholly justified.

MattGaiser 3y ago

What I would like to be explained is who is lending them the money. In the article, they went bankrupt with 7 billion in debt. Someone isn't getting that money back. Whoever gave them the money evidently gave it to them unsecured as well, as the PE company ran off with the buildings. Lender gave some very generous terms here evidently.

legitster 3y ago
https://www.bloomberg.com/news/articles/2024-02-01/risky-borrowers-storm-loan-market-for-once-unthinkable-savings https://www.bloomberg.com/news/articles/2024-02-01/risky-bor... The fees on this kind of debt are incredibly high, and banks are kind of desperate right now for higher interest loans. I think banks kind of have a "fool me twice, shame on me" attitude when it comes to bad loans - if they are adjusting the fees accordingly for the risk they should (theoretically) be fine on average in the long run.
s1artibartfast 3y ago
It isnt very different than an auto loan. A bank gives you money to buy it, knowing full well that the value will only go down after you drive it off the lot. The car is collateral for the loan, and if you pay a high enough premium, the bank may accept the car as the only collateral. The bank has an actuarial team that models the rate of loan defaults and car crashes. Back to the real examples, banks invest in leveraged buyouts because on average, they make more money than they lose.

s1artibartfast 3y ago

I dont really see the issue with leveraged buyouts. It is basically the same as banks buying a company and paying the equity firm for management. >The last thing a struggling company needs is to take on a massive load of debt, just to change to owners who have no skin in the game! This depends on your the goal. The owner of the struggling company wants out, and this is their exit. In some cases the purpose is simply to pay someone shut down the company in the most profitable way possible, which is a completely legitimate financial goal. One analogy is someone buying a car because the market value is less than they can get by driving it until it dies and then selling off the parts. It is normal to buy assets you know will depreciate to zero, as long as you get more value than the price.

sirspacey 3y ago

I’ve yet to meet someone with experience in dealing with PE who didn’t find it anything other than a “gut and pump” arrangement. The myth of PE creating operating efficiency is as necessary as VCs “adding value.” Having seen the ops behind the curtain, the skepticism on those claims is wholly justified.