Economy
Related: About this forumToys 'R' Us was crushed by the mountain of debt heaped on the company when it was taken private
Toys 'R' Us was crushed by the mountain of debt heaped on the company when it was taken private
Link to tweet
Interest payments of $6 billion limited investment firms ability to improve stores, compete online
By Miriam Gottfried and Lillian Rizzo
Sept. 19, 2017 7:17 p.m. ET
Competition may have brought down Toys R Us Inc. But the debt that three Wall Street firms heaped on the company when they took it privateand the way the ownership group was constructedleft the retailer without a fighting chance.
When a consortium comprised of Vornado Realty Trust and private-equity firms KKR & Co. and Bain Capital bought the toy retailer for $6.6 billion in 2005, it was already struggling against competition from discounters including Wal-Mart Stores Inc. and Target Corp., and the threat of...
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Miriam Gottfried
@miriamgottfried
Private equity and restructuring reporter for The Wall Street Journal; 212-416-2679; miriam.gottfried@wsj.com
https://twitter.com/Lilliannnn
Sorry, even going in through Twitter, I get no more than that.
https://www.wsj.com/articles/heavy-debt-crushed-owners-of-toys-r-us-1505863033?mod=e2tw doesn't seem to go around the paywall.
The_Casual_Observer
(27,742 posts)crazylikafox
(2,762 posts)mn9driver
(4,428 posts)Those conducting the buyout get very rich. The banks that arrange the loans get monster fees.
The company itself and the employees get screwed. Bankruptcy and disappeared pensions are the usual result.
Except for the LBO artists, who get very rich. Did I mention that?
Gothmog
(145,631 posts)The fact that that this company was a LBO does not surprise me. LBOs often have issues with too much debt
AllaN01Bear
(18,498 posts)unblock
(52,352 posts)if the capital extraction were done through any means other than interest payments on the borrowed funds, people would see it for the scam that it is.
instead, people dismiss it as business as usual, hey, ya gotta pay your debts.
but it's one thing when you go bankrupt because you couldn't pay back funds used to operate or expand a company; it's another thing when you go bankrupt because you couldn't pay back funds used to take the company private.
in any event, in order to succeed as an lbo you have to grow very quickly and luckily, enough to pay back the incredible interest and debt. if you're then in the clear, you win big time.
otherwise, there are a lot of losers.
the vc firms that create such deals may or may not be ahead on any particular deal; it depends on how much interest they were able to extract before it all falls apart. but they do enough of these deals so that on average, they're richly rewarded for this nonsense.