The Ponzi Scheme that is American Finance

Discussion in 'Wall St. News' started by ralph00, Oct 5, 2009.


    Buyout Firms Profited as a Company’s Debt Soared

    For most of the 133 years since its founding in a small city in Wisconsin, the Simmons Bedding Company enjoyed an illustrious history.

    Presidents have slumbered on its mattresses aboard Air Force One. Dignitaries have slept on them in the Lincoln Bedroom. Its advertisements have featured Henry Ford and H. G. Wells. Eleanor Roosevelt extolled the virtues of the Simmons Beautyrest mattress, and the brand was immortalized on Broadway in Cole Porter’s song “Anything Goes.”

    Its recent history has been notable, too, but for a different reason.

    Simmons says it will soon file for bankruptcy protection, as part of an agreement by its current owners to sell the company — the seventh time it has been sold in a little more than two decades — all after being owned for short periods by a parade of different investment groups, known as private equity firms, which try to buy undervalued companies, mostly with borrowed money.

    For many of the company’s investors, the sale will be a disaster. Its bondholders alone stand to lose more than $575 million. The company’s downfall has also devastated employees like Noble Rogers, who worked for 22 years at Simmons, most of that time at a factory outside Atlanta. He is one of 1,000 employees — more than one-quarter of the work force — laid off last year.

    But Thomas H. Lee Partners of Boston has not only escaped unscathed, it has made a profit. The investment firm, which bought Simmons in 2003, has pocketed around $77 million in profit, even as the company’s fortunes have declined. THL collected hundreds of millions of dollars from the company in the form of special dividends. It also paid itself millions more in fees, first for buying the company, then for helping run it. Last year, the firm even gave itself a small raise.

    Wall Street investment banks also cashed in. They collected millions for helping to arrange the takeovers and for selling the bonds that made those deals possible. All told, the various private equity owners have made around $750 million in profits from Simmons over the years.

    How so many people could make so much money on a company that has been driven into bankruptcy is a tale of these financial times and an example of a growing phenomenon in corporate America.

    Every step along the way, the buyers put Simmons deeper into debt. The financiers borrowed more and more money to pay ever higher prices for the company, enabling each previous owner to cash out profitably.

    Click link entire story
  2. wave


    That's why they are called "Vulture Investors." Load up the companies with debt, make profit, thank you, next.
  3. These vulture/private equity assholes ought to be forced to give back all the cash they looted from these companies or get their asses thrown on jail!

    In America, you go to jail for stealing bubble gum from a store, but rip off $millions from a company and cause thousands to lose their jobs, & you're called a 'smart' investor.

    What fucked up, greedy society.
  4. AK100


    Proves the definition of 'capitalism'

    "To pass money around from one entity to the next until there's nothing left"
  5. AK100


    True, but this is what you get when you worhip money as your God. All things can be forgiven as long as you make a $.

    And it's what makes America so great but at the same time nasty.
  6. Something is missing here...

    Like a decent honest board of directors that should / will put the company in the hands of long term owners who will put the long term welfare of the business and its employees ahead of short term profits....
  7. Short term profits for 'the financial community' is the biggest threat to jobs, creating and sustaining thousands of companies making real products, and the employees and shareholders of those companies.

    These people leveraging these companies (when it's not necessary and in fact, harmful) should be put in jail.
  8. Perhaps we look past the cut and dried issue "Load up the companies with debt, make profit, thank you, next." and realize that you can't manufacture in the US and make a profit.

    We can blame the finance intelligensia but the hard fact remains, there ain't no money in running a business.
  9. maxpi


    I'm coming around to the viewpoint that what needs to be done is reregulation... deregulation has been the big watchword for 30 years or more and it's a disaster...

    Democrats are in charge of all three branches of government and they don't have the stones to start standing up to this garbage that is allowed and encouraged... it's a disgrace... get some stones, send some guys in to shoot a few of these investors just to send a message and start passing some legislation quick while there still is a US of A... Democrats should do that because historically when the government officials become nothing more than an elite class of vandals somebody shoots them eventually... I'd compare these Democrats to the Caucescus of Romania... I saw the video of when they were put up against the wall and blown away... they were elites to the very end saying "you can't do this to us, we are the leaders of Romania"... they built the largest known castle in the history of the earth while their population was undernourished and dying.. they probably thought they were providing jobs for the people !!! I kind of wonder if this seemingly stupid Obama or looney Pelosi actually know the difference between a private sector job and a public sector job... how the one takes money OUT of the economy and reduces the tax base.....
  10. wave


    "All they do is buy companies at a discount, leverage up the balance sheet, and use the cash flow to pay off the debt -- extracting millions in fees in the process."

    "Well now that access to cheap, covenant-lite debt has dried up, buyout shops are turning to the other option for making money: operational improvements."

    All those newly minted MBAs from Bain, McKinsey, BCG are licking their chops.

    Holy crap, operational improvements, what a concept! All those private equity guys will now have to become strategy consultants.

    Business process reengineering and Automation are big now. Think Toyota, think LEAN. They will learn how to accomplish more with less. They have no choice when the consumer hangs up the towel.

    Better brush up on your case interview skills.
    #10     Oct 5, 2009