Comment by Twirrim | Hacker News Reader

Comment by Twirrim | Hacker News Reader

Parent Full thread

From https://qz.com/1219495/remingtons-ar-15-the-financial-histor...

"It was still a profitable company, except that its owners had loaded it up with debt in typical private-equity style to divert profits to themselves. In the first nine months of 2016, the company could pay $45 million in interest to its creditors and still walk away with a $19 million profit. In the same period in 2017, Feinberg and the company’s remaining investors faced a $60 million loss"

So this just appears to be another example of a private equity company buying up and saddling a profitable business with unsustainable debt, much like what happened with Toys'R'Us et al. The same pattern we've been seeing for a while.

Debt holders should be suing the private equity people for their losses. Otherwise it is a loophole that is easily abused.

The debtholders entered a voluntary contract. They knew the risks. No one forces them to invest into Remington.

Shareholders can sue if the company's management clearly acts against the shareholders' best interest. For example, some shareholders are suing Facebook over the data misuse issue, since it's impacting the stock price: https://techcrunch.com/2018/03/23/facebook-hit-with-sharehol...

Shareholders aren't debtholders.

Why does this make sense? Do the owning companies get to rid themselves of debt they transferred to the child company?

My understanding of how this game works is pretty bad, so hopefully someone can correct me. The way I understand it, one way to do this is to take a company that has a lot of debt and to use that debt to acquire control over the company without needing to actually buy it as face value. Then the new controller begins charging huge "management fees" to the child company, has the child company pay "dividends" to the new owner, etc, basically lifting the money out of it as directly as they can get away with. Then the empty, indebted shell falls into bankruptcy, and the managers claim a big tax write-off for taking a big "loss" on their investment.

Reply on news.ycombinator.com