This site is intended to pick up where the Buyout of America book leaves off.

The topic of leveraged buyouts should be more timely as ever with the coronavirus hurting private equity-owned companies, like Nieman Marcus and hospital emergency room services operator Envision Healthcare, more than others because of their high levels of debt.

This New Yorker article from May 2020 captures it well.

In fact, Moody’s in May 2020 reported that two-thirds of the companies with the lowest debt ratings were owned by private-equity firms.

Standard & Poor’s in February 2020 reported $1.5 trillion in speculative-grade US corporate debt matures through 2024. The bulk of it is in the last few years, $386 billion in 2023, and $492 billion in 2024.

Roughly 60 percent of the money has been borrowed by private equity firm owned companies.

But the partners at the private equity firms make money regardless, even TPG Capital in bankrupt J. Crew. TPG’s investors did not make a profit, but the partners who ran the firm made three times their money.

TPG’s Cirque du Soleil in March 2020 also defaulted on its debt.

Lawmakers in June 2020 criticized Leonard Green & Partners, a J. Crew co-investor, of taking $658 million in fees and dividends from a struggling safety-net hospital operator and wants it to give the money back to the company.

The largest private equity firms from 2006 through 2015 collected $230 billion in fees and delivered returns to investors that were about the same as stock market index funds, according to an Oxford Business School professor who said in June 2020 it was a giant transfer of wealth.

Wall Street Journal reports that Blackstone, Apollo, Carlyle and KKR collectively reported roughly $9 billion in management fees from their private-equity businesses between 2008 and the end of 2013, regulatory filings show. The amount compares with only $12.2 billion in “carried interest,” their 20 percent share of deal profits.

The private equity industry is in a good spot since they have money to spend during the current downturn.

PE firms have $2.5 trillion in dry powder to invest. And they have shown over time an uncanny ability to change with the times.

Since the pandemic started, private equity firms have bought minority stakes in troubled companies (like Expedia) in exchange for guaranteed interest payments and warrants.

Apollo Global Management and others are becoming bigger shadow lenders moving in to fill the void being left by banks.

In May 2020, Apollo said it was raising $20 billion for distressed opportunities.

The Fed is also buying high-yield debt so lenders may start funding leveraged buyouts again in the not so distant future.

Private equity firms too have gotten some breaks in the coronavirus stimulus bills even while many of the rank-and-file in Congress, both Democrats and Republicans, are highly critical of leveraged buyouts.

Congress temporarily lifted the interest tax deductible-limitation allowing companies in 2019 and 2020 to take essentially all the interest they pay on loans off their taxes.

Under the tax law that took effect in 2018 companies were limited to reducing only up to 30 percent of taxable income from taxes.

Bloomberg in November 2018 examined the tax change.

Our tax system encourages corporate borrowing.

Private equity firms buy companies the way that homebuyers acquire houses. They make a down payment, say 25 percent, and finance the rest. The critical difference, though, is while homeowners pay the mortgages on their houses, the PE firms have the businesses they buy take out the loans, making them responsible for payment. Much of the interest the companies pay on the loans come off of taxes.

A revealing study on how PE-owned businesses paid much less in taxes than their peers came out after I finished writing the book. A 2012 article covered the same ground.

I explain in a video (clip is from the documentary CorporateFM) how private equity works. Also, I explain that ending interest tax deductibility completely in takeovers would end destructive buyouts.

The Labor Department in June 2020 said 401-Ks could invest in private equity funds potentially unlocking a new source of money.

Meanwhile, Congress is not letting private equity-owned companies get Payroll Protection Program (PPP) money.

A new think tank, American Compass, run by conservative-leaning founders in May 2020 said private equity invents, creates, and builds nothing.

A thorough private equity study published in Oct0ber 2019 by academics sympathetic to the industry shows US companies bought in leveraged buyouts from 1980 through 2013 reduce employment over two years by 4.4 percent compared to their peers, and wages by 1.7 percent.

A prior study by mainly the same professors covering LBOs from 1980 to 2000 showed job loss over two years was 3.6 percent. So job loss in more recent years has been greater. Also, the prior study showed job loss in years three to five doubled. So, the new study if it included job loss for the first five years, using the same math, would have shown about an 8.8 percent job loss over five years.

The new PE study covers roughly 6,000 companies and 7 million workers. That’s 616,000 American workers needlessly fired.

Private equity firms through LBOs own companies employing about one of every 10 Americans in the private sector.

The New York Times in a great January 2020 column shows how private equity reduces real productivity cutting to shreds the only positive shown in the private equity study.

Private Equity At Work, published in May 2014 by two economists finds private equity-owned companies are twice as likely as public companies to file for bankruptcy. The authors also say workers at private equity-owned companies see wages fall compared to peers.

The private equity industry lobbying group is throwing out anecdotes to show how they can help businesses, like in the buyout of Popeyes. The main problem with the Popeyes example is it was bought out of bankruptcy, not a typical leveraged buyout.

What are the benefits of LBOs? It usually results in largely indebted companies that struggle compared to their peers and sometimes go bankrupt. And since companies can take the interest they pay on loans off taxes, this also means less money for the government.

This January 2020 article from Vox explains how private equity puts companies at risk. Great opening about how the private equity industry lobbying group complains to the PBS NewsHour in 2010 after it airs a segment with me criticizing leveraged buyouts. The lobbying group says Toys R US is a perfect example the NewsHour could have used to show how PE firms help companies. Toys R US in 2017 ends up liquidating costing 30,000 jobs.

Federal Reserve Chairman Jerome Powell in May 2019 said financial regulators must take seriously potential dangers that rising levels of business debt pose to the US economy, according to the WSJ.

Senator Elizabeth Warren (D-Mass.) and co-sponsors including New York Senator Kirsten Gillibrand in July 2019 released the Stop Wall Street Looting Act that tackles many of the issues highlighted in the book.

Additionally, there are Congressional investigations of private equity firms that invest in the private prison industry to determine if their ownership leads to lower service; private equity firms that invest in colleges and universities; and those that own physician practices including KKR and the Blackstone Group whose companies present surprise billing to emergency room patients.

The New Yorker in April 2020 wrote a very good story about how the private equity firms have fought against legislation stopping surprise billing.

Even private equity returns are not so great.

Bain & Co. in February 2020 published its 2020 annual report on the industry and the main takeaway is that over ten years public equities outperformed private equity.

Warren Buffett in May 2019 said private equity fund returns were not as great as advertised. “We have seen a number of proposals from private equity funds where the returns are really not calculated in a manner that I would regard as honest.”

A Nov. 2013 Columbia Business School study shows private equity firms, when factoring in fees and the costs of committing money years before it is spent, generate average returns (no better than the stock markets).

In Feb. 2019, Buffett said private equity was really “private debt” since private equity firms put little equity in their businesses. He said they have $1 trillion to spend and when adding debt in leveraged buyouts can acquire companies worth $3 trillion, a good percentage of the stock market. Start watching the “I would like buying a business” video at 1:15.

Nineteen Democratic Senators, including Bernie Sanders (I-Vermont), in July 2018 sent a letter to KKR, Bain Capital, and Vornado Realty Trust questioning the logic of buyouts in general, and the rationale of putting Toys R Us in deep debt.

“Leveraged buyouts—such as those facilitated by your companies—often result in mass job loss, closure of profitable businesses and unnecessary financial burdens for local government,” the letter states.

Bain and KKR, as a result have put $20 million in a fund that in December 2018 started paying severance to the 33,000 Toys workers who lost their jobs.

The Spectacular Failures podcast, in which I am interviewed, does a nice job detailing the Toys fall.

Amazingly, KKR Managing Director Vini Letteri in an April 2019 Fortune question-and-answer profile admitted that his firm has not grown companies. “We made a strategic decision to shift towards what we would call growth-oriented buyouts. That is, going after companies that have high revenue growth but still have the opportunity to scale—versus “financial buyouts of legacy, cash-rich, slow-growth companies, where you put leverage on them and make your return by containing costs.”

Three of the seven largest LBOs done between 2004 and 2008 were run with containing costs in mind and went bust — including radio station giant iHeart Media (formerly Clear Channel), Caesars Entertainment (formerly Harrah’s) and utility Energy Future Holdings (formerly TXU).

US Congresswoman Rashida Talib (D-Mich.) in April 2020 asked Thomas H. Lee Partners to pay Van Art Furniture employees health insurance after quickly shutting down.

“This is yet another example of private equity firms destroying companies, while screwing over workers and leaving communities to suffer,” she said.

The United Nations in March 2019 accused The Blackstone Group of fueling a global housing crisis by buying single-family homes, renovating them and then “massively inflating rents” making it hard for low and middle-income families to afford.

In March 2020, the New York Times published a great Sunday Magazine story covering the same ground. Blackstone, and other Wall Street investors, make money by purchasing single-family homes taking the chance of home-ownership away from many and ending their chances at wealth creation.

Blackstone is proving to be a slumlord when renting single-family homes. Also, Blackstone is profiting from forcing a Spanish company into default (much like Goldman did with credit default swaps).

Cerberus Capital, run by the chair of President Trump’s Intelligence Advisory Board, is acting like a slumlord in the way it handles tenants who rent from its single-family homes.

The Carlyle Group and other private equity firms in 2019 get roasted by John Oliver for buying mobile home parks and increasing rents.

In December 2018, The Washington Post does a nice job detailing how private equity firms including Sun Capital sometimes make money while bankrupting pensions, such as with Marsh Supermarkets. Cerberus caved to a pension in March 2020 when threatened with a strike at its company Albertsons that it is trying to take public.

I detailed in a 2017 New York Post article how the Supreme Court ruled that Sun Capital shafted workers and how Sun often made money at the expense of workers.

Book published about how Sam Zell bankrupted Tribune. Tribune employees, whose pension was used by Zell to buy Tribune, settled post-bankruptcy, for $32 million. A win, but not much justice.

See more current news Under The News Tab including how private equity firms hurt health care companies

Portfolio published the paperback of the Buyout of America Nov. 30, 2010.

There are new updates throughout the book, which is more timely than ever with the public concerned about how Wall Street impacts Main Street.