America’s Oldest Gun Maker Went Bankrupt: A Financial Engineering Mystery • Hacker News Board

Re: America’s Oldest Gun Maker Went Bankrupt: A Financial Engineering Mystery

#231

Post by sigstoat » Fri, May 03, 2019, 10:58 PM UTC

CalChris wrote: post #150

matthewaveryusa wrote: post #115

The part I don't get is how Cerberus made money. It seems like it was a zero-sum for Cerberus. They loaned the holding company 225M, and presumably got that money back through the holding buying the stock back from Cerberus after the holding sold the 11% corp. bonds. Is it that between when the holding bought the stock back from Cerberus and Cerberus (via the holding) sold the bonds Cerberus had control of Remington…

Cerberus buys Remington for $118M in cash and assumes $252M in Remington debt. Except that it wasn't Cerberus, it was a Cerberus subsidiary S which Cerberus owned with stock X. Then Remington borrowed $225M which it transferred to S which then bought back its stock X from Cerberus. Cerberus is then out of the transaction with $225M - $118M. Remington + S (which Cerberus no longer owns) has $252M + $225M in debt.

> Then Remington borrowed $225M which it transferred to S which then bought back its stock X from Cerberus.

hmm. so, who is willing to loan Remington $225M in that situation? it seems like "recently bought by private equity company known for shenigans" would discourage banks and prospective bond purchasers?

Re: America’s Oldest Gun Maker Went Bankrupt: A Financial Engineering Mystery

#232

Post by bubblewrap » Fri, May 03, 2019, 10:58 PM UTC

zentiggr wrote: post #191

bluGill wrote: post #185

Earlier quoted context omitted.

If you die deep in dept you managed to cheat at life: your cost of living was higher than input. If you die rich you got cheated: you put more effort into life than you got out of it.

And there is the failure of so much modern thinking, laid out in black and white: your financial picture is your measure of success. God I hate greed and the profit motive more than anything else in this whole wacky place. I would love to die in average suburban comfort if it meant the billions I'd made had all gone to deserving causes and not to any flagrant lifestyle of my own.

I don't see how your desire is incompatible with the comment above it. You can give all your money to deserving causes. By the definition of the previous post, you have then succeeded in life, because you have no money left. If you don't give money to deserving causes and happen to have some left, you have been cheated by life. It's pretty similar to what you say (except it gives you more options on what you want to spend on).

Re: America’s Oldest Gun Maker Went Bankrupt: A Financial Engineering Mystery

#233

Post by roenxi » Fri, May 03, 2019, 11:01 PM UTC

zentiggr wrote: post #191

bluGill wrote: post #185

Earlier quoted context omitted.

If you die deep in dept you managed to cheat at life: your cost of living was higher than input. If you die rich you got cheated: you put more effort into life than you got out of it.

And there is the failure of so much modern thinking, laid out in black and white: your financial picture is your measure of success. God I hate greed and the profit motive more than anything else in this whole wacky place. I would love to die in average suburban comfort if it meant the billions I'd made had all gone to deserving causes and not to any flagrant lifestyle of my own.

Greed and the profit motive are proxies for resources not being infinite and so we have to make hard choices about who gets what.

What doesn't get managed (observe->think->act if needed) gets squandered; and if we squander resources at the societal level that would just be stupid. We don't have the abundance of the modern era because luck is on our side, we have it because our management practices have grown unbelievably efficient over the centuries. Economic forces are the most effective way of triggering the management cycle; and because of that are necessary.

The need to focus on the material (which manifests as greed and profit seeking) is an ugly fact of life in the same way that needing to eat regularly is an ugly fact of life. It'd be better if we could get rid of both, but there are practical considerations to bow to.

Re: America’s Oldest Gun Maker Went Bankrupt: A Financial Engineering Mystery

#234

Post by geofft » Fri, May 03, 2019, 11:27 PM UTC

UweSchmidt wrote: post #140

ahupp wrote: post #118

Earlier quoted context omitted.

Both of these things can be true: that the top 1% own a large fraction of wealth, and that an even larger fraction is owned by the pensions and retirement plans of the non-wealthy. Wealth comparisons are tricky, e.g they'll show that Americans are some of the poorest people in the world because there's a large fraction with debt (e.g homes, credit cards, student loans). While technically true, that doesn't really mat…

Well then our intuition is wrong. If your finances throughout your life are not in order, if you have high debt, regardless if it's because of medical bills, student loans or too big a car and house, you are in a weak position. What good does a nice car do if you worry about bills and if you try to avoid to look at the balance in your banking app? You don't always know how rich some folks are, but for the most part i…

> What good does a nice car do if you worry about bills and if you try to avoid to look at the balance in your banking app?

You have a nice car you can drive around?

I mean, the purpose of money is to do things with it. The balance in your banking app is only relevant because you desire to put it to some purpose. If you stop desiring to put it to some purpose, you're equally equipped whether or not you have a positive balance, and if you already have put it to some purpose like a nice car, you've accomplished the actual goal you wanted and should stop getting distracted by the means. (You should, of course, continue to pay attention to the means if you have other, unfulfilled goals. And perhaps you should think about whether having a nice car is more of a priority than those goals. But the goals are not money in and of itself.)

If you've got debts from student loans or mortgages that are set up such that you can pay those debts slowly and in a way you can afford to pay, and in the meantime you've got money to spend, you are actually fine. A balance sheet that only looks at how much is in the bank and how much you're in debt and not at how much you can afford to hold that debt is not telling the full story.

(This is, incidentally, the same reason the national debt isn't a big concern: nobody is going to demand that we pay that debt right now. So going further into debt gives the ability to do more things with that money, i.e., it gives us the effect of having more money, even though on paper we now have less money.)

Re: America’s Oldest Gun Maker Went Bankrupt: A Financial Engineering Mystery

#235

Post by UnFleshedOne » Fri, May 03, 2019, 11:33 PM UTC

mschuster91 wrote: post #221

irrational wrote: post #194

Earlier quoted context omitted.

I tell this to my college age kids. One of them is off touring Europe right now. I asked her how she is paying for it (and pointed out that I've never been to Europe because I can't afford it). She says she is going into debt to do it, but it is okay because experiences are more important than money. She is studying anthropology and non-profit management. I've pointed out that there aren't very well paying jobs with…

Your daughter is more financially prudent than you think: she realized that, no matter how much of her young life she lived on ramen, she will never have much in her name as most of her income will be wasted away on rents, transportation and food. So she decides to f..k it and at least have fun. Better die poor and having lived a fruitful life than die poor and having lived on ramen the entire time. With many of my g…

Meh, there is a difference between not having much to your name and having a fat debt collector sitting on your neck.

"sure, there is no way you can walk over that pile of broken glass without cutting your feet, so fuck it, lets get naked and roll around in it, at least you'll feel the breeze gently waving your nether parts for the first half of the process"

Re: America’s Oldest Gun Maker Went Bankrupt: A Financial Engineering Mystery

#236

Post by cascom » Fri, May 03, 2019, 11:39 PM UTC

vorpalhex wrote: post #2

This is not an uncommon story for firearm manufacturers unfortunately. Tooling costs are high, sales hard to predict, and designs can fail easily. Ian McCollum of Forgotten Weapons has done a lot of videos on this topic.

Not to mention as consumer products go they are incredibly long lived, I can’t think of many activities where someone might still use their grandfather’s [tennis racquet, golf clubs, etc], but you regularly see people still using 50-75 year old guns (if not older)

Re: America’s Oldest Gun Maker Went Bankrupt: A Financial Engineering Mystery

#237

Post by elchief » Sat, May 04, 2019, 12:06 AM UTC

The theory behind this is, a stable company should have plenty of debt, as it can easily pay it off (because it's stable), and is generally cheaper than equity.

A company should also have only as much cash as it needs, else management will waste it

So a private equity company sees a company like Remington, with too much cash and not enough debt. It borrows a lot, buys it, and minimizes cash reserves. This tends to increase the market cap substantially

However, this obviously has some downsides, if you don't get the default risks just right...

Re: America’s Oldest Gun Maker Went Bankrupt: A Financial Engineering Mystery

#238

Post by coredog64 » Sat, May 04, 2019, 12:15 AM UTC

icelancer wrote: post #173

bluejekyll wrote: post #20

Earlier quoted context omitted.

I’ve read about this scenario many times, but I’m curious about why any creditor would lend money to a company that’s poised to do this. Wouldn’t these private equity firms lose the ability to borrow money based on past practices like this?

Bain Capital and others who do LBOs don't have a 100% failure rate. It's just that the failures are reported and the successes (Lenovo) are not celebrated.

I would add TPG and OnSemi to the success column. It was painful working there when TPG was keeping things lean for a sale, but they did eventually invest in the business an OnSemi was much better for it.

Re: America’s Oldest Gun Maker Went Bankrupt: A Financial Engineering Mystery

#239

Post by dv_dt » Sat, May 04, 2019, 12:15 AM UTC

mwfunk wrote: post #203

nickelcitymario wrote: post #147

Earlier quoted context omitted.

Well, thought experiment: John lives in extreme poverty. He's debt free, but is unable to adequately feed himself or his family. Several of his children have died from malnutrition. Marc lives in a nice suburban home, has 3 square meals a day, so does everyone in his family. However, his debts (including his mortgage, car payments, student loans) exceed his savings. If our intuition is wrong, then John is winning. He…

They’re both screwed. I’d rather have crippling debt than children dying from malnutrition, but obviously both Marc and John are completely screwed in different ways. They’re both losers in this scenario, there are no winners.

In that scenario, Marc has far more options and freedom to escape his instantaneous debt state than John does.

Re: America’s Oldest Gun Maker Went Bankrupt: A Financial Engineering Mystery

#240

Post by mschuster91 » Sat, May 04, 2019, 12:18 AM UTC

UnFleshedOne wrote: post #235

mschuster91 wrote: post #221

Earlier quoted context omitted.

Your daughter is more financially prudent than you think: she realized that, no matter how much of her young life she lived on ramen, she will never have much in her name as most of her income will be wasted away on rents, transportation and food. So she decides to f..k it and at least have fun. Better die poor and having lived a fruitful life than die poor and having lived on ramen the entire time. With many of my g…

Meh, there is a difference between not having much to your name and having a fat debt collector sitting on your neck. "sure, there is no way you can walk over that pile of broken glass without cutting your feet, so fuck it, lets get naked and roll around in it, at least you'll feel the breeze gently waving your nether parts for the first half of the process"

She's one medical emergency or expensive treatment (cancer) away from bankruptcy anyway, which can wipe out her savings in an instant. No matter what, there will always be debt collectors looming over her head.