Buyout banker confesses: "When the feces hit the oscillator..."
"The rich got richer, and the middle class and working class got pink slips"
A longtime Philadelphia business lender who worked here for a string of multinational banks sent me this note re my Monday column about buyout firms, under the condition that I not post his name, because he remains active in city social and financial circles and prefers to make his criticism from a distance: "Before I retired from a career in commercial lending, I had the opportunity to work with local private equity sponsors and the investment banks that put together the junior and senior debt to finance business buyouts.
"The transactions were certainly good business for the private equity limited partners who would see a good return on their investment in five to seven years, the former business owner who was able to monetize the value of his business and walk away, and the investment banks and debt holders who would receive handsome upfront fees and generous interest rates. Sometimes the deals would be grand slams that would pay a quick dividend through a recapitalization and the piling on of additional debt.
"And what about the employees? I always felt that they were viewed as nothing more than a line item on the profit and loss statement. Anything that could be done to reduce that expense, i.e. job reductions, would increase EBIDTA (gross profits) and help to insure that the newly indebted company could meet the liquidity and leverage covenants in the bank loan agreements.
"The rich got richer and the middle class and working class got pink slips. Loans to finance these buyouts served no economic purpose except to transfer wealth. And in 2009 and 2010, when the feces hit the oscillator, many of these highly leveraged deals went up in smoke and the banks that financed them took large loan charge-offs.
" I am pretty sure that the Carlyle Group didn't buy the Sunoco refinery out of the goodness of its heart. They bought it because they saw a good deal and, of course, taxpayers helped sweeten the deal for them.
"Don't we always? Privatize profits, and (socialize) the tax benefits, and losses."
He added, re last Monday's column about jailing more financiers who contributed to the 2008 financial crash: "Putting a few hundred of those jerks into prison would have been a wonderful thing. Not only did they trash the financial system, but they walked away with their huge monetary rewards intact.
"I see that (adjustable-rate mortgages) have returned. We are screwed again and it's only a matter of time until the next government bailout. As a taxpayer I am outraged."