From Pine View Farm

One of the Simple(ton) Tools: the Lever 0

I have discussed “leverage” before.

It is the practice of buying stuff with money you don’t have, holding on to it for a while, and then selling it for more than you paid for it, so you can pay off the money you borrowed to make the initial purchase and keep the difference.

Until recently, being “deeply in debt” was bad, but being “highly leveraged” was good, at least on Wall Street. The primary difference seems to be that normal working folks were “deeply in debt”; persons with private jets were “highly leveraged.”

Sort of like Flip This House, only it was Flip This Company. Problem is, it only works as long as the bubble keeps expanding.

Not so much expansion any more:

Bain Capital LLC, which has made more than $100 billion of investments since its founding in 1984, has hired restructuring specialists AlixPartners LLP and Miller Buckfire & Co. to help salvage its $3.2 billion 2007 takeover of Tampa, Florida-based OSI Restaurant Partners Inc. The company, which owns the Outback Steakhouse chain, is struggling with declining revenue and a 30-fold increase in losses during the worst economic crisis since the Great Depression.

Boston-based Bain isn’t the only leveraged buyout firm trying to bail out its investments. Apollo Management LP and Blackstone Group LP are employing an arsenal of tools, including debt exchanges and equity infusions, to rescue leveraged buyouts, such as Freescale Semiconductor Inc. and Realogy Corp. After spending a record $1.2 trillion on acquisitions during 2006 and 2007, LBO firms are now focused on deal-saving, not dealmaking.



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