‘Ruthless’ bankruptcies
The NYT has a story on what look to be ‘ruthless’ bankruptcies in store for companies who sought or were forced to take too much leveraged debt:
American companies currently have more than $1.7 trillion in S.&P.-rated bonds and loans maturing from 2011 to 2014. The total debt load coming due will climb steadily over the next four years, with the proportion of debt in the speculative category growing, the credit rating agency said.
In 2011, there will be about $300 billion in debt due, of which 41 percent is considered speculative. But by 2014, the amount of debt due climbs to about $550 billion, 72 percent of which is speculative.
“We believe that many borrowers at the low end of the ratings scale will encounter serious hurdles to their refinancing needs in 2013 and 2014,” John Bilardello, a managing director at Standard & Poor’s, said in the report. “Unlike investment-grade entities, for which the main issue is the rising cost of capital, speculative-grade borrowers may find that financial institutions and investors are wary of lending to them.”
Much of this debt currently owed by American companies was a result of heavy borrowing during the leveraged-buyout boom, which lasted from 2005 to 2007.
Private equity firms borrowed enormous sums of money from banks to finance the buyout of companies and then loaded the target companies up with debt.
But the target companies have since had a hard time paying down their debt because of the down economy, which blunted profits.
S.&P. believes that these companies have been successful in pushing back their debt maturities past 2010, avoiding a potential rash of defaults and bankruptcies this year…
Uh, Yeah. I don’t suppose any of what passes for ‘serious people’ in the US has given any thought to laws and policies that prevent or discourage leveraged buyouts and similar looting operations?
As things stand now, it seems that the only defense a conservative, well-run company has against rape and pillage is not to go public.
Not that we have all that many conservative, well run, companies left to loot after a couple of decades of globaliization and barbarism masquerading as capitalism.
So, on the assumption that “markets” clever-clever, and “know” stuff about how things will turn out that the rest of us cannot, how’d that happen? How does the stock held by the M&A firm appreciate while the firm holds it, and at the same time damages the firm by loading it up with debt, right in full public view?
I remember, long ago, being told that financial structure matters to the extent it can change the tipping point, past which the firm is no longer a going concern, but that otherwise, financial structure isn’t magic. In theory, adding debt doesn’t add value unless insiders at the firm know they have an investment opportunity of which share holders are not aware.
How does market religionism square with this business of getting rich by destroying firms through debt?
So, on the assumption that “markets” are clever-clever, and “know” stuff about how things will turn out that the rest of us cannot, how’d that happen? How does the stock held by the M&A firm appreciate while the firm holds it, and at the same time damages the stock by loading it up with debt, right in full public view?
I remember, long ago, being told that financial structure matters to the extent it can change the tipping point, past which the firm is no longer a going concern, but that otherwise, financial structure isn’t magic. In theory, adding debt doesn’t add value unless insiders at the firm know they have an investment opportunity of which share holders are not aware.
How does market religionism square with this business of getting rich by destroying firms through debt?
Where are those market people when you need them to say something?