Toys ‘R’ Us Collapses Into Bankruptcy Thanks to Crushing Debt

[RedDuke]

https://www.bloomberg.com/news/arti...-for-bankruptcy-crushed-by-online-competition

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Much of that is the legacy of a $7.5 billion leveraged buyout in 2005 in which Bain Capital, KKR & Co. and Vornado Realty Trust loaded the company with debt to take it private. Since then, the Wayne, New Jersey-based chain has struggled to dig itself out.
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I read Barbarians at the Gate, and still do not get rationale about LBO (besides of course enriching few main parties involved). The logic that more debt makes company more efficient and trims fat, makes no sense.

Can someone explain?

 

[newwurldmn]

https://www.bloomberg.com/news/arti...-for-bankruptcy-crushed-by-online-competition

...
Much of that is the legacy of a $7.5 billion leveraged buyout in 2005 in which Bain Capital, KKR & Co. and Vornado Realty Trust loaded the company with debt to take it private. Since then, the Wayne, New Jersey-based chain has struggled to dig itself out.
...

I read Barbarians at the Gate, and still do not get rationale about LBO (besides of course enriching few main parties involved). The logic that more debt makes company more efficient and trims fat, makes no sense.

Can someone explain?

It doesn't. It only juices returns for the shareholders while putting the corporation at greater risk.

Leverage can be a wonderful thing when it works. When it doesn't it can be a disaster.

The argument about LBOs in the 80s was a scam so that miliken could earn more fees trading junk bonds.

 

[RedDuke]

It doesn't. It only juices returns for the shareholders while putting the corporation at greater risk.
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This makes perfect sense.

 

[murray t turtle]

It doesn't. It only juices returns for the shareholders while putting the corporation at greater risk.

Leverage can be a wonderful thing when it works. When it doesn't it can be a disaster.

The argument about LBOs in the 80s was a scam so that miliken could earn more fees trading junk bonds.

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I agree with much of that , NewW,maybe 95%; even if that was Mr Milkens motivation+ it may or may not have been?? The other side of the trade did not do it to enrich Mr Milken, anymore than i trade /invest to profit my broker.....I bought real estate for cash+ used leverage; something to be said for both ways. But 100% of foreclosures/+ ,are caused by debt

 

[Superstar2317]

While I agree, look up Ira Rennert, commodity billionaire as he used LBO's with Milliken to build a commodity empire. If anything look up his estate as it is/was, the most expensive estate in the US. Now THAT place is goals! Michael Dell did, an LBO, of his struggling Dell, a few years ago, and supposedly it's doing very well from reports.

 

[newwurldmn]

LBO's can make the shareholders fabulously wealthy. Scores and scores of billionaires have been created through the use of LBO's. But also millions of jobs have been destroyed because otherwise healthy companies couldn't sustain overbearing debt amounts.

And in the middle: the banks collect gobs and gobs of fees. You think banks like hedge funds. You should see how they treat the private equity guys!

 

[RedDuke]

....But also millions of jobs have been destroyed because otherwise healthy companies couldn't sustain overbearing debt amounts.
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Pretty much how I understand it. Sad reality that it is legal.