Yeah, it's private equity 101. I can't believe it happens. A bunch of MBA sharks get loans to buy something with some chop shop plan or other ruthless scheme to carve up or spitshine a company.
The loans are then assigned to the company they bought, rather than the core sharks ... uh investors. The "investors" then repackage/selloff/spit shine as necessary to get it resold to some sucker. The investors get THEIR money back with a profit, leave the debt to the company and the sucker who buys it, and look for the next victim/target.
Musk likely went the rapacious route because he made a dumb move, and this is the only way he's getting the money he committed to the deal back.
Oh yeah, and when they buy the company, they are in charge of it. So they can pay themselves whatever they want in executive bonuses / etc.
Why is that possible or legal? It feels like a loan for purchase of a company necessarily should belong to the purchasers of the company and be paid by the sale of the equity they bought or profit. This way just feels… rigged.
The people who buy the debt know what they are getting into. (And if those 'suckers' don't know, honestly, they shouldn't be investing in junk bonds etc.)
It is not a bad thing as such. The main problem comes when a business is stripped of all its assets and/or weighed down with more debt than it can repay and fails as a consequence, leaving employees out of a job and communities without a formerly productive enterprise.
It is more that it tends to beat raw deal for the purple who lose their jobs for no good reason. The Twitter people will likely mostly land on their feet but most leveraged buyouts aren't affecting highly compensated employees with highly in-demand skills.
> Yeah, it's private equity 101. I can't believe it happens.
Why not? It's pretty good for all the stakeholders that have a say.
The old shareholders sold for a nice price.
The new ownership didn't have to pay for the whole thing.
The lender gets to charge a pretty good interest rate because there's a good chance of default. If they're lucky, they get repaid; if not, maybe they made enough in interest to make it worthwhile; maybe when it defaults, they'll be able to make something worthwhile out of the wreckage they got at a nicer price.
Leveraged buy outs aren't great for stakeholders that don't have a say. Employees usually get new terms worse than the old ones; in this case, there's been some severance at least. Customers get a promise of a big bang bankruptcy in the near to medium term, rather than a slow fizzle. Sometimes companies with a large payment they can't make can restructure, and sometimes they shutdown with little notice. As a private company without public accounting reports, there will be a lot of guessing about revenue and debt service.
Which goes to demonstrate the very sorry state of our society, a society where employees are not (anymore) part of the "stakeholders that have a say" group.
Because at the end of the day, as you mention, it's the employees and their families that will suffer the most. But as long as those employees don't have board seats while strikes and labor-related physical protest movements have become a thing of the past then I guess this is the reality we'll have to live on for the foreseeable future.
The loans are then assigned to the company they bought, rather than the core sharks ... uh investors. The "investors" then repackage/selloff/spit shine as necessary to get it resold to some sucker. The investors get THEIR money back with a profit, leave the debt to the company and the sucker who buys it, and look for the next victim/target.
Musk likely went the rapacious route because he made a dumb move, and this is the only way he's getting the money he committed to the deal back.
Oh yeah, and when they buy the company, they are in charge of it. So they can pay themselves whatever they want in executive bonuses / etc.