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As the article says, leveraged buyouts of retail end in bankruptcy only 41% of the time, and most of those bankruptcies are presumably not a total loss for the
by SpicyLemonZest 8mo ago
As the article says, leveraged buyouts of retail end in bankruptcy only 41% of the time, and most of those bankruptcies are presumably not a total loss for the banks. So it's just a matter of pricing the loans to ensure the successes cover the losses.
(Why do private equity firms want to be in this business? Because the 59% that don't fail often generate very good returns.)
- bubblewand 8mo ago> (Why do private equity firms want to be in this business? Because the 59% that don't fail often generate very good returns.) The way they limit their own exposure to risk seems to increase the odds of the targeted business completely failing, though. I think that's the part people have a problem with.
- SpicyLemonZest 8mo agoAgreed. I'm sure there's edge cases I don't know about, but in general I think it would be better to simply not allow leveraged buyouts and let businesses that would fail without the buyout fail.
- megaman821 8mo agoWhat kind of rates do you need to charge to cover 41% bankrupcty odds? Home lending would fall at an order of magnitude lower rate.
- SpicyLemonZest 8mo agoI tried to look into this, and as far as I can tell the terms of LBOs are just so opaque there's no good way to tell. Maybe patio11 will do an article on it some day.