It's not like "but for Private Equity firms, these would be vibrant, competitive, going concerns". At most, PE was a specific acceleration of their demise, but it seems overwhelmingly likely that the reaper was coming for them anyway...
Sure. This downplays how poorly things were going for Toys R Us before the leveraged buyout. They significantly underperformed expectations the holiday season before the leveraged buyout. Private Equity bet big that they could help Toys R Us make the jump to e-commence as well as revamping stores (they were notoriously outdated compared to the competition at the time of the buyout) and improve operational efficiency. The added debt did make things worse, but Toys R Us was failing on multiple fronts before the buyout (which is why they became a buyout target). Given their underperformance in several strategic areas, it's unlikely that Toys R Us was going to magically turn things around if Private Equity never got involved.
I'm not arguing that Bain and KKR (the Private Equity companies involved) added any value. Both bet and lost $1.3B each on the idea that they could legitimately turn things around at Toys R Us. The rapid rise of e-commerce along with the economic downturn in 2010 meant that Toys R Us was likely doomed regardless of who tried to lead their turnaround. There are legitimate reasons to be critical of Private Equity, but it's not as simple as saying Toys R Us died only because of it.
The article makes it seem super obvious that these deals won't work out. But that is actually not the case. Many / most PE deals actually do work out, and end up making the sponsors a lot of money.
And why would banks allow this? Because private equity are huge profit drivers. They use lots of debt. They also acquire many companies, so there is an ongoing relationship.
if this were the true problem, i.e. if there were a profitable business that just wasn't making enough income to service its debt, then the enterprise would continue to exist after restructuring the cap table.
adding debt to the company just changes the cap table, it doesn't change the profitability of the underlying company.
"either way it would be coming out of the cash owned by the PE shops". They don't have to invest you know. After all, the company is now unprofitable. Obviously it's just inefficient. Why give money to an inefficient company from your core profitable business, when you can break the company up and use the profit from looting it in your core profitable business which you're good at?
It makes much more sense for PE finance to siphon funds for use in a field they have expertise in (more finance) than try to manage companies in various fields (like retail) they're so not expert on, especially when the companies are in the debt.