Loading in Debt?

[Anonymous]

How does a private equity firm load dept into a company? Who are the winners and losers when this happens? You would think that the banks would be smart enough to avoid these types of companies

 

[Anonymous]

How does a private equity firm load dept into a company? Who are the winners and losers when this happens? You would think that the banks would be smart enough to avoid these types of companies

Good article that describes how private equity can have a company go bankrupt and still make money off the deal

http://davidjromano.com/djr.com/?p=1198

 

[Anonymous]

Certainly the math gets interesting. WP needs to take as much cash out of the business as it paid for it. I am not sure how loading debt makes this possible. It is all quite confusing and impossible to know exactly what is going on because the private equity firm is keeping the books private.

 

[Anonymous]

Here's the simple way to think about it: It's like being a homeowner and then your LENDER takes out a 2nd mortgage on your house only to pocket the money while leaving you paying the interest on the money borrowed. You don't see any benefit but have to deal with the debt service. In addition, should you go bankrupt, the LENDER keeps that money they borrowed out while letting you foreclose on your house and absorb the debt into your bankruptcy. They walk away with the money and let you take the fall. Now imagine if multiple LENDERS do the same thing to the same company...and load it with debt while hoarding the cash and placing it into their "untouchable" bank accounts. That, in a nutshell, is how private equity can load a company up with debt and then let it take the fall. The company and it's employees and stakeholders loses, but private equity will win.