From today's Wall Street Journal:
Private-equity firms are adding debt to the companies they own in order to fund payouts to themselves, a controversial practice now reaching a record pace.I wonder why, after all the bad publicity surrounding debt loading, asset stripping and off-shoring, private-equity firms are actually "accelerating" the process of adding debt to the companies they buy in order to fund mammoth payouts to themselves, a controversial practice now reaching a "record pace".
Leonard Green & Partners LP, Bain Capital LLC and Carlyle Group LP CG -1.98% are among the firms using the tactic, which rose in popularity before the financial crisis.
In these deals, known as "dividend recapitalizations," private-equity-owned companies raise cash by issuing debt. The proceeds are distributed in the form of dividends to buyout groups.
Short speculation after the shredded pumpkin below.
It has been highlighted all summer by the Obama campaign as they hammered home the results of Romney's favorite use of leveraged capital on employees of such companies while at Bain. But why NOW is the trend towards using such tactics accelerating? Is it pure and simple greed? Perhaps it is the only easy way big money has left to beget big money? Or, does Big Money fear the "borrow and strip" days may be, somehow, coming to an end? Certainly they know its not going to be quite as lucrative:
Another driver of the trend, some say, is private-equity investors' desire to reap dividends before the potential increase in taxes on the proceeds next year.To me, the above is another way of saying, "I want to get as much as I can, as quick as I can, before they change the rules on me". Perhaps with everyone talking about closing loopholes will come the realization that this method of "creating wealth" is bad economic policy and is merely another way the Ultra Wealthy has of plundering Main Street for their own advantage and perhaps our tax policy should be changed to discourage it? Think that really has a real chance of happening?
I don't. But its good that the current political conversation has them at least looking over their shoulders.