CharlieDigital
Banned
Pseudo_Sam said:
You sure? Here's a pretty good example:
http://www.nytimes.com/2009/10/05/business/economy/05simmons.html?_r=1&dbk
For most of the 133 years since its founding in a small city in Wisconsin, the Simmons Bedding enjoyed an illustrious history.
Simmons says it will soon file for bankruptcy protection, as part of an agreement by its current owners to sell the company the seventh time it has been sold in a little more than two decades all after being owned for short periods by a parade of different investment groups, known as private equity firms, which try to buy undervalued companies, mostly with borrowed money.
But Thomas H. Lee Partners of Boston has not only escaped unscathed, it has made a profit. The investment firm, which bought Simmons in 2003, has pocketed around $77 million in profit, even as the companys fortunes have declined. THL collected hundreds of millions of dollars from the company in the form of special dividends. It also paid itself millions more in fees, first for buying the company, then for helping run it. Last year, the firm even gave itself a small raise.
How so many people could make so much money on a company that has been driven into bankruptcy is a tale of these financial times and an example of a growing phenomenon in corporate America.
Every step along the way, the buyers put Simmons deeper into debt. The financiers borrowed more and more money to pay ever higher prices for the company, enabling each previous owner to cash out profitably.
These private investors were able to buy companies like Simmons with borrowed money and put down relatively little of their own cash. Then, not long after, they often borrowed even more money, using the companys assets as collateral just like home buyers who took out home equity loans on top of their first mortgages. For the financiers, the rewards were enormous.
Twice after buying Simmons, THL borrowed more. It used $375 million of that money to pay itself a dividend, thus recouping all of the cash it put down, and then some.
These private investors were able to buy companies like Simmons with borrowed money and put down relatively little of their own cash. Then, not long after, they often borrowed even more money, using the companys assets as collateral just like home buyers who took out home equity loans on top of their first mortgages. For the financiers, the rewards were enormous.
Twice after buying Simmons, THL borrowed more. It used $375 million of that money to pay itself a dividend, thus recouping all of the cash it put down, and then some.
A result: THL was guaranteed a profit regardless of how Simmons performed. It did not matter that the company was left owing far more than it was worth, just as many people profited from the mortgage business while many homeowners found themselves underwater.
...
But nobody, it seems, was listening. Six months after acquiring Simmons, THL set in motion plans to take the company public. And by December 2004, THL found a way to get part of its initial investment back. Simmons issued debt that required the company to pay a hefty 10 percent annual interest rate. The proceeds were used to pay THL a dividend of $137 million.
...
By early 2007, at the very top of the credit market bubble, THL took a bit more out of Simmons. It created a holding company that it used to issue $300 million more in debt, which paid an additional $238 million dividend to the private equity firm. With that, THL had recouped its entire $327 million equity investment in Simmons and booked a profit of around $48 million. (It made an additional $28.5 million in various fees over the years.)
THL was hardly alone in undertaking this sort of financial engineering, known as a dividend recapitalization. From 2003 to 2007, 188 companies controlled by private equity firms issued more than $75 billion in debt that was used to pay dividends to the buyout firms.
Now on the flip side:
From the start, Noble Rogers loved working at Simmons.
There were picnics, March of Dimes walks, Christmas parties, and we always had Halloween parties. It was a really family-oriented company, Mr. Rogers, 50, recalled. I told my wife that this was a great place for me to work. A great place for me to retire, to make a living at.
For a long time, it was. For 22 years, Mr. Rogers worked at Simmons, the bulk of those years at a factory in Mableton, outside Atlanta. After operating the coiler machine for the companys Beautyrest mattress, he moved into maintenance and kept all of the plants machinery humming.
Over the years, as Simmons passed from one private equity firm to another, and as Mr. Rogers became president of the local union at the plant, he saw little difference on the plant floor. Then, in the spring of 2008, when the slowing economy had begun to hurt sales, Simmons laid off the night shift at the Mableton plant. And on Sept. 18 that year, it gathered employees in the cafeteria to say that the plant was closing.
So many people were hurt because they thought this was a great company to work for and they planned on spending the rest of their lives here. Their families were here. They bought houses and cars here, Mr. Rogers recalled. After this happened, people were really struggling.
Between the closings and other cuts, Simmons let go of more than a quarter of its work force last year, said its chief financial officer, William S. Creekmuir.
Mr. Rogers, who received his union-negotiated severance package of two months pay, said he and other union representatives had tried to get a little more for workers, particularly those who would have been eligible for retirement. Simmons had a long history of giving retiring employees a bonus of $20 for each year worked and a free mattress set, Mr. Rogers said.
They wouldnt give us anything, he said.
In the months after he lost his job, Mr. Rogers nearly lost his home to foreclosure and struggled to pay his familys bills. Mr. Rogers, who eventually landed a job at an air filter company and picked up part-time work doing maintenance at an apartment complex, said Simmons bore little resemblance to the company he once loved.
There were picnics, March of Dimes walks, Christmas parties, and we always had Halloween parties. It was a really family-oriented company, Mr. Rogers, 50, recalled. I told my wife that this was a great place for me to work. A great place for me to retire, to make a living at.
For a long time, it was. For 22 years, Mr. Rogers worked at Simmons, the bulk of those years at a factory in Mableton, outside Atlanta. After operating the coiler machine for the companys Beautyrest mattress, he moved into maintenance and kept all of the plants machinery humming.
Over the years, as Simmons passed from one private equity firm to another, and as Mr. Rogers became president of the local union at the plant, he saw little difference on the plant floor. Then, in the spring of 2008, when the slowing economy had begun to hurt sales, Simmons laid off the night shift at the Mableton plant. And on Sept. 18 that year, it gathered employees in the cafeteria to say that the plant was closing.
So many people were hurt because they thought this was a great company to work for and they planned on spending the rest of their lives here. Their families were here. They bought houses and cars here, Mr. Rogers recalled. After this happened, people were really struggling.
Between the closings and other cuts, Simmons let go of more than a quarter of its work force last year, said its chief financial officer, William S. Creekmuir.
Mr. Rogers, who received his union-negotiated severance package of two months pay, said he and other union representatives had tried to get a little more for workers, particularly those who would have been eligible for retirement. Simmons had a long history of giving retiring employees a bonus of $20 for each year worked and a free mattress set, Mr. Rogers said.
They wouldnt give us anything, he said.
In the months after he lost his job, Mr. Rogers nearly lost his home to foreclosure and struggled to pay his familys bills. Mr. Rogers, who eventually landed a job at an air filter company and picked up part-time work doing maintenance at an apartment complex, said Simmons bore little resemblance to the company he once loved.
So yeah, go defend those private equity guys who basically raped and pillaged a company that thousands of people counted on for an income and their retirement. Go defend those guys who stacked more debt on top of Simmons only so that they could cash out and pay themselves a handsome sum while leaving Simmons in bankruptcy. Oops! Our bad! Sorry, dude! A few dozen people walk away millions while a few thousand people walk away without their pensions and without a job. Sound like a fair trade to you?
Of course, this isn't saying that all of those in the top 1-5% didn't work for their money. Certainly trial lawyers may put in over a hundred hours a week when working on an intense case. A doctor may pull long hours and perform critical surgeries at great risk and what not. But there's also a class of super wealthy that make most of their money off of investments (money from money instead of money from work) where capital gains taxes are less than half of their marginal tax rate.
