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  •  Correction noted. (7+ / 0-)

    Clear Channel is owned by Bain and they were the ones larded up with debt.  It's an old story and one that was very prominent when Rmoney was running for president.  Bain is notorious for taking a company over that had very little debt.  They suck the equity out of the company, keep the money for themselves and then the company either goes bankrupt or is broken up and sold.  I just never thought Bain would have done that to their own.  I suspect they did it i anticipation of a Rmoney presidential run and a Rmoney win.  Unfortunately it didn't work out too well for Rmoney.  Clear Channel was the one I wanted to say won't last til 2016.  I believe they got an extension on their debt but with the slow economy,  downturn in advertising money and the hit they're getting with Rush Limpballs it's a matter of time before the debt gets to be overwhelming.  Ironic that conservatives like to point to Greece as a case of failed socialism, even though it isn't, and yet here is a classic case of vulture capitalism at it's worst (or best depending on your perspective).    

    This is your world These are your people You can live for yourself today Or help build tomorrow for everyone -8.75, -8.00

    by DisNoir36 on Fri Jan 03, 2014 at 11:15:50 AM PST

    [ Parent ]

    •  DN - that actually isn't the Bain Capital business (0+ / 0-)

      model. They do purchase healthy companies with good cash flows and load them up with debt. The business model is to grow those companies and sell them intact for a lot more than what they paid for them. That's the model that has driven the significant success at Bain Capital. And they do take out more fees and dividends than the typical private equity fund. When things don't go well is when you see them sell companies in pieces or take them through a Chapter process, but that is not the goal or intended outcome when they invest. However, if all you have ever read about Bain Capital is on DKOS or other Internet sites its understandable that you would have an incomplete view of BC. I have actually had the opportunity, on a confidential basis, to review every investment BC has made since inception.

      There is no doubt that Bain Capital partnerships will lose all the money they invested in Clear Channel, and that the lenders will take a big haircut. I think Clear Channel will hang in there until 2016 because presidential election years bring a lot of political advertising and they would much rather go through the pain of the liquidation off a good year. One interesting issue is who will buy the AM stations. Recently Christian broadcasting groups have been the most active purchasers of available AM signals.

      "let's talk about that"

      by VClib on Sat Jan 04, 2014 at 10:16:35 AM PST

      [ Parent ]

      •  The problem VClib (2+ / 0-)
        Recommended by:
        Gary Owen, JuliathePoet

        is that for every successful Staples, there is also a KB Toys.  The fact that they're able AT ALL to buy healthy companies with good cash flows and then load those companies up with debt while they take off with that cash is frankly very troubling and should be illegal.  Doesn't matter if it's only a small part or a big part of their success.  It should NOT be allowed.  

        If Clear Channel does make it to 2016 then they have a good chance of making it to 2017 because as you say presidential election years bring alot of political advertising money.  But once 2017 comes and that money dries up they're toast.  However, I remain skeptical as to whether or not they'll even be able to make it that long.  2016 is a full 2 years away and their revenue stream is drying up.  

        Who buys up the AM stations is pretty irrelevant.  Am radio is dying as Satellite and internet based radio grows.  Unless the purchaser is a big player who can buy up large swaths of the stations, AM radio is not going to have anywhere near the power as it did with Clear Channel.  More likely is that it will be smaller groups who buy a few local stations here and there and they won't have anywhere near the ears listening to them as the Clear Channels do which means that expensive on air personalities like Rush and Sean Hannity will be ass out.  It's very likely that progressive voices will also be ass out but frankly they're such a small share of the pie that losing them won't be as big a loss as the right losing the likes of Sean and Rush will.  The Right Wing dominated AM radio and even if Christian broadcasting groups gobbled up all the stations, there is no doubt in my opinion that the power of the right wing AM radio is reaching an end.  Clear Channel was a large reason why AM hate radio flourished and FM radio and the music industry have been dying a slow death.  It's only fitting that Clear Channel and AM hate radio dies off as a result of right wing ideology and greed.

        This is your world These are your people You can live for yourself today Or help build tomorrow for everyone -8.75, -8.00

        by DisNoir36 on Sat Jan 04, 2014 at 10:41:45 AM PST

        [ Parent ]

        •  When private equity funds buy a company (1+ / 0-)
          Recommended by:
          nextstep

          they become the new 100% owner having purchased all the shares from the previous owners. At that point they own the company and are subject to all the same rights, rules and regulations as any other private company. Private companies may take on as much debt as institutional lenders are willing to loan them, regardless of who the owners are. The debt providers are all sophisticated lenders and do their own independent due diligence. Most of the time the loans are paid and return significantly higher yields that AAA bonds. I don't think there is a legal basis for telling a business owner that they can't borrow money if someone is willing to lend it to them and they mutually agree on the terms. How could that be illegal?

          "let's talk about that"

          by VClib on Sat Jan 04, 2014 at 11:30:19 AM PST

          [ Parent ]

          •  Still doesn't make it right (0+ / 0-)

            They own the company so they can do whatever the fuck they want is not a reasonable answer.  The fact that some dumbass lender is willing to give them the money doesn't make it better.  They're taking a perfectly sound company, taking the equity out of it for their own personal gain, cutting the pay and benefits of their workers, affecting whole communities and in the end that perfectly sound company goes under while they walk away with the equity.  If it only affected themselves and the lenders who were stupid enough to give them the money that would be one thing but as we've seen with Bain and others (Hostess for example) that is not the case.  

            This is your world These are your people You can live for yourself today Or help build tomorrow for everyone -8.75, -8.00

            by DisNoir36 on Sun Jan 05, 2014 at 01:01:48 PM PST

            [ Parent ]

            •  BTW (0+ / 0-)

              This business model was not the way it was done more than 40 years ago.  It became the norm in the early 80's.  So whatever was being done to prevent or reduce this type of behavior in the past should be looked at as a guide to stop this type of shit from happening in the future.  Maybe the taxing investment income at the same rate as regular income.  When Reagan lowered the Cap Gains rate to 20% in 81 it led to an explosion in leveraged buyouts and so on.  So raising it to match regular income seems like a logical and reasonable step.  Obama raised it back up to 20% (plus a surtax above certain income levels) but it is still well below levels for regular income.  Or how about maybe requiring investors to actually invest more of their own money when buying other companies rather than using the equity in that company as collateral.  If you want to buy a house for example you have to put some money down.  The gov't has certain programs for first time buyers and so on where they only are required to put 3% down plus closing costs but its a process to get approved.  Typically though you need 20% down if you plan on living in it.  Investors will be lucky if a bank lends them 60% to buy an investment property.  When banks didn't go by these rules of thumb that was when they got in trouble.  Why then can't it be standard policy that if a company wants to buy another company they have to ante up a percentage (20%? 30%? 40%?) of the costs to buy it?  It seems only reasonable.  Those two are off the top of my head and I think they'd be pretty effective in tamping down on these types of 'investments' which only benefit the investors while extracting the wealth from perfectly sound companies and a considerable cost to the workers and communities.      

              This is your world These are your people You can live for yourself today Or help build tomorrow for everyone -8.75, -8.00

              by DisNoir36 on Sun Jan 05, 2014 at 01:32:01 PM PST

              [ Parent ]

              •  The difference between now and 40 years ago (0+ / 0-)

                have little to do with capital gains tax rates. The biggest difference was the development of what we call high yield or junk bonds. Prior to the development of the high yield bond market the type of leverage needed to make the private equity model work wasn't available. I don't think the government could legitimately regulate how much a private lender can lend a private equity fund to purchase a company, using the assets of the company as collateral. And the private equity partnerships do typically provide 20-25% of the capital as equity in each deal.

                However, the single biggest reason the early LBO funds (the forerunner of private equity funds) were so successful was that many public companies were tremendously under valued by the public market. A group or people realized that you could buy very successful companies with their own cash and cash flow. If you had enough leverage a small increase in the total value of the company could generate a very high rate of return for the investors.

                "let's talk about that"

                by VClib on Sun Jan 05, 2014 at 03:31:35 PM PST

                [ Parent ]

                •  You say it has little to do with tax rates (0+ / 0-)

                  I beg to differ.  Lower taxation leads to more risky investments.  It's no coincidence that once tax rates in investment income was lowered investment in high yield or junk bonds soared.  

                  Also this

                  And the private equity partnerships do typically provide 20-25% of the capital as equity in each deal.
                  is all well and good however, real estate investors are usually required to pony up 40% in each deal.  I suspect that if private equity partnerships were required to pony up 40% that we'd see alot less of these deals.

                  This is your world These are your people You can live for yourself today Or help build tomorrow for everyone -8.75, -8.00

                  by DisNoir36 on Mon Jan 06, 2014 at 05:03:28 AM PST

                  [ Parent ]

            •  DN - there is no way that a company can go under (0+ / 0-)

              and the private equity investors can walk away with their equity. The equity is the capital most at risk and if a company hits the skids that is what is lost first. The debt holds a more senior position and if the company is sold for less than what the private equity investors paid, the debt, and other liabilities, are paid first, the equity is paid last.

              While my answer may not be reasonable to you it is the current state of the law. Private owners of businesses don't need to do what is right for anyone except themselves (assuming they obey all laws) and their business decisions  aren't always going to be right.

              "let's talk about that"

              by VClib on Sun Jan 05, 2014 at 03:21:41 PM PST

              [ Parent ]

              •  There is ABSOLUTELY a way (0+ / 0-)

                They walk away with it by giving themselves bonuses after the deal has been completed.  It happened with Hostess where the ownership repeatedly awarded themselves huge bonuses and salaries as they were cutting employees pay, benefits and raiding their pension all prior to finally shuttering the doors.  Hell those assholes were giving themselves extra pay to fucking shut the doors on a company they drove into the ground and some asshole bankruptcy judge actually allowed it.  Those bonuses comes from somewhere.  By the time the company enters bankruptcy that money is long gone so what position the remaining equity has at that point is moot since it's been raided already.

                The answer I'm looking for is not 'it's the law and therefore we should accept this shit'.  I'm looking for the answer to what can and should be done about it to correct this behavior.  If that means changing the laws then which ones specifically.  If that means changing tax law then which tax laws and how changing them will affect or cut down on this behavior.  If that means enacting new laws, then what will those laws be.  Status quo is not a solution but the problem.  

                This is your world These are your people You can live for yourself today Or help build tomorrow for everyone -8.75, -8.00

                by DisNoir36 on Mon Jan 06, 2014 at 05:13:39 AM PST

                [ Parent ]

                •  The bonuses are paid to the executives (0+ / 0-)

                  managing the company, not the investment partnerships. The ability to pay dividends is restricted by IRS and accounting rules, but to the extent they are paid those would go to the private equity investors and is a way that they can take some of their equity investment off the table. If that is done close to a bankruptcy filing there are clawback provisions in the bankruptcy code.

                  I think this is one area where changing the laws are very difficult, with the exception that changing the carried interest rules have a lot of political support and would decrease private equity fund manager compensation. However, I don't think changing the carried interest rules would have any impact on the private equity business model or how private equity funds operate. The managers would just earn less after taxes. The challenge is that trying to change what private company owners can do to manage and leverage their business is difficult because the rules would apply to all private companies, not just those owned by private equity investors. When the government tries to make fundamental changes to how private companies can manage their own financial activities we lose support from the business sector, across the board, and politicians of both parties.  

                  "let's talk about that"

                  by VClib on Mon Jan 06, 2014 at 08:22:05 AM PST

                  [ Parent ]

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