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View Diary: Mitt 'Free Enterprise' Romney sought and received federal bailout for Bain (103 comments)

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  •  A bit of background: (0+ / 0-)

    Bain & Co borrowed $38 million from the Bank of New England and by 1991 when the FDIC seized the Bank of New England (second largest bank failure at that time), Bain & Co. was out of compliance with its loan covenants and unable to pay its debt.  IOW Bain was bankrupt because they were lousy at running a business.  

    The FDIC loan loss adjusters accepted a settlement offer from the Bain gang to reduce that loan balance by $10 million.  A 26% haircut for the bank.  (How many struggling mortgage loan borrowers would now be surviving if their principle loan balances were reduced by 26%?)  

    What else was going on the the world of sort of sleazy high-finance deals at that time?  Leveraged buyouts and junk bonds.  "Vanity Fair" in The Dark Side of Mitt Romney by Michael Kranish and Scott Helman details how Bain got in on that:

    It was time for another road show, but the days of soliciting prospects for scarce cash in obscure locales were mostly over. This time Romney and his partners headed to Beverly Hills, California. Arriving at the intersection of Rodeo Drive and Wilshire Boulevard, they headed to the office of Michael Milken, the canny and controversial junk-bond king, at his company, Drexel Burnham Lambert. Romney knew Milken was able to find buyers for the high-yield, high-risk bonds that were crucial to the success of many leveraged-buyout deals. At the time of Romney’s visit, it was widely known that Drexel and Milken were under investigation by the Securities and Exchange Commission. But Drexel was still the big player in the junk-bond business, and Romney needed the financing.

    Romney had come to Drexel to obtain financing for the $300 million purchase of two Texas department-store chains, Bealls and Palais Royal, to form Specialty Retailers, Inc. On September 7, 1988, two months after Bain hired Drexel to issue junk bonds to finance the deal, the S.E.C. filed a complaint against Drexel and Milken for insider trading. Romney had to decide whether to close a deal with a company ensnared in a growing clash with regulators. The old Romney might well have backed off; the newly assertive, emboldened Mitt decided to press ahead.
    .... Bain made a $175 million gain by 1997. It was one of the most profitable leveraged buyouts of the era.

    Romney sold at just the right time. Shares plunged in value the next year amid declining sales at the stores. The department-store company filed for Chapter 11 bankruptcy protection in 2000, struggling with $600 million in debt, and a reorganized company emerged the following year....

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