JohnPCapitalist wrote: ↑
Mon Jan 06, 2020 1:29 pm
Yet another casualty of the private equity business model: take companies private, load them up with unsustainable loads of debt so you can harvest profits and fees
out of the business today, cut costs below levels needed to maintain brand quality, then take them public in a bull market, sticking public market investors (like the mutual funds your 401(k) is in) with the losses when they go down the tubes, though it appears that Borden wasn't publicly traded when this happened.
Thank you for your comment. I had been thinking the same thing but to hear it from somebody in the industry confirms what I was thinking.
I have noticed some equity firms dump the companies into bankruptcy before taking them public. Since the purchase of the companies are heavily leveraged and the debt from the purchase being dumped into the company, not the equity firm who bought it, they can get their profits and fees out and drop the carcass into bankruptcy.
Are the banks loaning the money for the purchase getting guarantees on the debt or enough fees to ensure they break even or get a bit of profit? I only really see a way out if the equity firm had to retain responsibility for the debt, or that the financers could lose if the company fell into bankruptcy.