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>> Lenders aren't dumb. They know the reputation of the PE performing the buyout. If that particular firm has a terrible track record money to lenders, the lend
by rufus_foreman 1y ago
>> Lenders aren't dumb. They know the reputation of the PE performing the buyout. If that particular firm has a terrible track record money to lenders, the lender will want to be compensated for that risk.
That's not a bust out then. If the lenders get compensated for their risk it's just a business decision.
The accusation was "The company has a bunch of loans it will never be able to pay off (sucks for the lenders)".
The accusation was that the lenders were in fact dumb.
So which is it?
- beowulfey 1y agoIt's lenders all the way down, and the ones on the bottom are the ones who lose.
- antasvara 1y agoI mean, the view I have is that at the time of the LBO nobody knows for sure what will happen. The PE firm knows what they plan to do. The lenders know in a general sense what the PE firm plans to do, along with the track record of that firm's other LBO's and loans. Even if the outcome of bankruptcy is fairly certain, it's hard to predict how long it will take until that happens. The point I'm making is that if you only look at the failures, LBO's look like a bust out. But I don't think the entire concept of an LBO is a bust out, which is why I don't think the lenders are dumb for underwriting these loans.