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Private equity bought America's essential services

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Re: Private equity bought America's essential services

#181

Post by kome »

spyckie2 wrote: post #118

The irony is that PEs exist largely because of pension funds. So to sum it up (not so nicely) we are transferring value from our current standard of living to pay for retirement checks for our old folks. Pensions fund a significant part of PE and they do so because they need around a 7% return in order to look solvent. If they do not have the higher PE returns, they basically go out if cash in 10 years and everyone w…

I wrote about this not long ago: https://theloop.ecpr.eu/its-not-finance-its-your-pensions/ "It's not finance, it's your pensions"

(it's a blog summary of a much longer, and rather esoteric, academic article)

Re: Private equity bought America's essential services

#182

Post by yread »

elevation wrote: post #163
yread wrote: post #147

Earlier quoted context omitted.

> How can you make it illegal for the business to get a loan? That would also be legal. But if you take the assets out of the daughter company you would go to prison for https://web.archive.org/web/20141030194421/http://www.sfo.go...

The daughter company would presumable be allowed to purchase goods and services. What prevents those goods and services from being supplied (at a hefty markup) by another company under PE control?

If it's done for the purpose of defrauding debtors of the daughter company, the law

Re: Private equity bought America's essential services

#183

Post by malfist »

c54 wrote: post #141

Good article and discussion but I couldn’t find anything about the author? There’s no bylines or about page anywhere on the site. Does anyone know about the source?

Because it's slop. It even starts the whole article with "It's not X, it's Y"

Re: Private equity bought America's essential services

#184

Post by tavavex »

mghackerlady wrote: post #169
tavavex wrote: post #139

Earlier quoted context omitted.

Why is this downvoted? To me, it seems like a self-evident conclusion. Even the supporters of the current system would probably agree with it. When you have a system that encourages endless growth at absolutely all costs, while placing no limits at the amount of power a single entity can hold, what other outcome can there be but the biggest players absorbing everything into themselves and using their influence over p…

(I agree, but generally commenting about downvotes isn't something we do here from what I've seen)

I didn't comment just to complain about them, though, but to tell people who leave them to elaborate on why.

Re: Private equity bought America's essential services

#186

Post by FuriouslyAdrift »

spyckie2 wrote: post #118

The irony is that PEs exist largely because of pension funds. So to sum it up (not so nicely) we are transferring value from our current standard of living to pay for retirement checks for our old folks. Pensions fund a significant part of PE and they do so because they need around a 7% return in order to look solvent. If they do not have the higher PE returns, they basically go out if cash in 10 years and everyone w…

Pension funds still exist?

Re: Private equity bought America's essential services

#187

Post by NoboruWataya »

phkahler wrote: post #108

>> a structure where 50 to 90 percent of the purchase price is financed by debt, and that debt is loaded onto the balance sheet of the acquired company, not the firm making the acquisition. This just seems wrong. The buyer takes out a loan, how does that become the responsibility of the company they purchased? I thought loans used to buy a business treated the business as collateral, like a home mortgage. What lender…

> The buyer takes out a loan, how does that become the responsibility of the company they purchased?

Because the company they purchased is now a part of them.

As for why a lender would agree to it, it's because these transactions are not as simplistic or universally disastrous as they are usually described. A lender will obviously only make that loan if it has a reasonable expectation of being paid back, and most of them are. They may get additional collateral like parent/affiliate guarantees and the loans will have covenants relating to financial performance etc.

Re: Private equity bought America's essential services

#188

Post by pjc50 »

fny wrote: post #179
spyckie2 wrote: post #118

The irony is that PEs exist largely because of pension funds. So to sum it up (not so nicely) we are transferring value from our current standard of living to pay for retirement checks for our old folks. Pensions fund a significant part of PE and they do so because they need around a 7% return in order to look solvent. If they do not have the higher PE returns, they basically go out if cash in 10 years and everyone w…

A 30-year treasury offers 5% and A-grade corporate bonds offer 6.5%. You don't need to exploit essential services for the other 50bps. [0]: https://fixedincome.fidelity.com/ftgw/fi/FIYieldTable?popupM...

.. now. Five years ago that was more like 2%.

Re: Private equity bought America's essential services

#189

Post by PopAlongKid »

nyeah wrote: post #71
cj wrote: post #24

Earlier quoted context omitted.

LBO's are like buying a rental property where the mortgage is approved based on expected future rental income from the property. That's why the parent is saying "It is like paying for the company with the money from the company you are buying.".

LBOs are much worse than that. It's like buying a rental property where the mortgage is owed by the a shell corporation that owns the property. The shell corporation, not the purchaser, owes the debt. It's like taking out a mortgage on a house, but letting the house owe the debt.

>It's like taking out a mortgage on a house, but letting the house owe the debt.

Isn't that a non-recourse loan, which in some states is the default for the initial loan to acquire the housel

Re: Private equity bought America's essential services

#190

Post by sanex »

The theme I keep seeing in all of these problems about our economy is unfair access to debt. PE firms get a loan that you can't and then buy out your company? Giant megacorp get a loan for more than your companies value and make an offer you can't refuse. Billionaires live off loans instead of income and avoid paying income taxes. So many of our issues can be traced back to unfair access to debt. Too much cash in the system chasing returns. We need harder money.
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