[TheConservativeBanker]

Private equity firms come in all stripes, with a wide variety of ethical commitments. Some firms provide a way for small public companies to “go private” in order to manage themselves more strategically, free of the quarterly earnings obsession of public markets. Some provide financing for growing companies on the way to going public. Sadly, some could be fairly characterized as vulture funds, which buy mature companies, sell off assets, pay themselves huge dividends, load up on debt and pay themselves more huge dividends. This process sucks the company dry with bankruptcy or going public to bail out the PE sponsor

Romney’s firm Bain Capital indulged in quite a few of the latter type of transactions. I’m sure there are Romney fans here, but his vaunted private sector skill is mostly a sham. Rather, he is one of the biggest practitioners of predatory crony capitalism of our day.

[Zhang Fei]

[Sadly, some could be fairly characterized as vulture funds, which buy mature companies, sell off assets, pay themselves huge dividends, load up on debt and pay themselves more huge dividends. This process sucks the company dry with bankruptcy or going public to bail out the PE sponsor]

---

Debt buyers tend to be pretty savvy relative to retail stock market rubes. Where do they find suckers for this debt? Surely a substantial portion is fronted by PE firm investors themselves. Meaning that for the deal to be profitable, the target must not only survive, but thrive, so the PE firm can cash out with an IPO of the restructured and revived target. Without this Lazarus act, there are no profits for PE investors. In the beginning, PE firms could raid pension funds and gyp beneficiaries. These days, don’t judge-ordered clawbacks crimp such maneuvers?

[Zhang Fei]

Law firm article on the clawback issue:

“Investment Funds On Hook For US Pension Liabilities”

What’s worse is that some of these pension plans were underfunded to begin with, before the PE investors got involved, as pre-takeover executives changed funding assumptions (i.e. reduced contributions) to keep the company afloat amidst declining operating financials.