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Comment by bena | Hacker News Reader

> When KKR buys Toys“R”Us or when Carlyle buys the nursing home chain ManorCare, the debt is held by the company that they bought

That right there is what should be made illegal. Somehow. There's probably all sorts of technicalities wherein KKR didn't buy it directly, but as the majority of the board of TRU, authorized the self-purchase or something like that. But you shouldn't be able to force a company to essentially buy itself, pay you a lot of fees to do so, then fuck off while it drowns in the debt you forced on it.

If you have authority over something, you are also responsible for it. Both the good and the bad.

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Well, they aren’t really forcing the company to do anything. The original owners agree to the sale which is financed by debt that is secured by the business.

The other non-owner stakeholders (employees, customers) may not enjoy this new deal but that is the reality with any new owner of a business.

Of course, it is crappy when this results in negative experiences for them but at the end of the day, employees are free to work elsewhere and customers are free to buy elsewhere.

That last sentence is mostly meant as a warning to the new owners: screw up the business too badly and you won’t have clients or employees.

So you're saying that technically, it isn't what it looks like it is. That technically, TRU is buying itself. That technically KKR isn't actually the new owner.

Technically, it's still predatory.

The business isn’t “buying itself” any more than a house does when you purchase it. The debt is just placed against the assets (real assets and cash flow). The business has owners. It doesn’t “own itself”.

I don’t think it is predatory at all. A leveraged buyout is a pretty fundamental and common strategy across all business types and sizes.

Don’t hate the strategy of buying a business with debt, hate the players that execute it like assholes.

It's literally the legality of the strategy that enables the players to behave like assholes in this particular incredibly destructive way. The use of debt financing needs to be made illegal or have stronger constraints, for the health of the country in general.

When I buy a house, the house serves as collateral on the mortgage, but ultimately I'm responsible for the loan. So I'm liable for the loan amount and am legally obligated to pay.

A leveraged buyout is similar except the "house" is responsible for the mortgage and will suffer reputational damage if it fails to pay. But no person or collection of people are obligated to pay (ignoring the collateral).

One of the benefits of corporations is that the limitations is liabilities allow them to take risks that would be prohibitive for individuals. Originally corporate charters required direct intervention by the government chief executive or legislature. Corporations were limited to tasks that served a public benefit as that government wanted to incentivize.

Leveraged buyouts where the buyer doesn't intend to continue the business long term or true to drain value from the company instead of focusing on it's main business seem like an abuse of the trust the public has invested in these companies when it gave them a corporate charters.

Of course, nowadays you can get a corporation with little to no documentation at low cost, so maybe the government doesn't actually give a shit what they do...

> Don’t hate the strategy of buying a business with debt, hate the players that execute it like assholes.

The purpose of a system is what it does. Players take whatever they can get away with, in this case a good old mafia bust-out, but laundered legal. In the shadowy world of PE, there’s even less transparency and accountability than the usual near-zero amount. I mean, you could just wait for the mob justice of a fully fledged revolution to do its magic but I think most of us would prefer toothful regulation.

Old, old school solution: Nobody is stupid enough to buy the mountain of debt (junk bonds, whatever) - debt which will only be paid off if everything goes exactly perfect for many years to come.

Perhaps the SEC and DoJ should be considering fraud charges against the ratings agencies, investment banks, brokers, etc. who (in effect) represented that debt as worth ~100 cents on the dollar?

PE doesn't go through rating agencies. Their deals are by and large unrated and the debt for the most part is not traded on the secondary market because of that. That's why they can pull off so much shady shit.

It should incur some tax in that you took out debt with one entity, then another entity paid off your debt and it on its own. The PE has been paid the amount of the loan by the company they just bought as some kind of return

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