The banks are betting that the company/brand, once stripped of any valuable assets and being stretched to painful profitability at the cost of its reputation, will last long enough, with enough assets left at bankruptcy, that their high-interest, high-priority debt will be more than repaid.
If the private equity buys a firm in a leveraged buyout, sells off all its assets in a week, and shuts down immediately, it's the banks that get stiffed; The banks aren't idiots.
If you for some reason prioritize long-term survival & good/service provision of the ailing business, you need to take a bite out of the banks funding private equity takeovers that hit chapter 11 ("reorganization bankruptcy") or deprioritize their debt in chapter 7 ("liquidation bankruptcy") to disincentivize them providing funds.
There are certain shenanigans with private equity related to valuation and compensation ("My company is worth $1000, so I'm awarding myself 50% shares as part of a tax exempt retirement plan") that should be not just outlawed, but which should cause the IRS to send a CPA to go back and slap them in the face with a wet trout for having the fucking gall.
The cycle of enshittification that private equity often participates in, is less a problem with the fact of private equity, and more a problem with the giant piles of money in the finance industry growing much larger and taller than the economy they are theoretically structurally resting on. A problem with financialization and wealth inequality itself, with the system designed for upwards wealth redistribution, trying to transfer the last 10% of the world's money (which the poor are using as their medium of exchange) into the same dragon's hoard that has the rest.
The company is already walking dead; they're just feasting on the corpse. Left alone they'd peter out faster.
Is that actually true, or just a story used to justify the bad actions? There are a lot of meme-stories like the latter, floating to justify all kinds of money-making behavior. People with money have the resources to plant them.
One way to tell is if the company does not emerge from bankruptcy but instead liquidates - it was probably already dead.
I would say it's even the thesis of the article. Joann Fabrics was a healthy company with customer demand and zero debt and was basically assassinated by a leveraged buyout.
Why not and how would you stop? It’s no different than a company issuing bonds to buy back its own equity.
I agree that it’s contributing to the enshitification of many end consumer industries, but I’m not sure what such a “ban” would look like it practice.
Which was illegal until 1982 and could be made illegal again.
That being said, it seems criminal to take an enormous management fee while sending a company into bankruptcy.
And yes, people will try to wiggle around it. That's what regulatory agencies are for. Yeah, they don't 100% work. Believe me, you're unlikely to out-cynic me.
It should still be illegal.
Essentially, that means some amount of corporate risk is leveraged upon the principal investors.
This is common practice in the EU for so-called "club deals".