WildCat
NWO Master Conspirator
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(citation needed)
Farewell, Twinkies
- Thread starter ravdin
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- bankruptcy hostess
balrog666
Eigenmode: Cynic
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Baloney! If doesn't matter if they only paid a nickel for $850 million in debt - it still means the company borrowed $850 million and they still owe it all.
And the interest would be paid no matter who owned the debt.
And the management team gets paid for managing - it is not some element of "profit" for the investors.
Yes, it does - good for them if they make a profit. It's the reward for taking on the risk of dealing with intransigent unions with a business that has been poorly run for a decade or two.
Yes, they took a loss but, obviously, they thought they got a good deal (and maybe they did too). And since the company borrowed that money, it still owes it. All of it.
Corporate bonds are no different than a home mortgage that gets sold to a different investor - no matter what the new investor paid for the mortgage note, the mortgagee still owes the full amount they borrowed. It's exactly the way used car financing works too - the effective interest rate earned by the final note holder is irrelevant to the original car buyer.
balrog666
Eigenmode: Cynic
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Could be.
Of course it is going to take a year or more to unwind the company, sell off assets, and pay off creditors, so they might want to keep those people around for a bit longer while they ferret out all the hidden accounting messes sure to come to light ...
The_Fire
Unimpressed Female
Anecdotal and from denmark (which means the rules are probably different) but an inside view on a bankruptcy:
When the company I worked for went bust, the executors kept on a skeleton crew in a period (14 days)(I got called in on a project basis as well) to finish the contracts/deliveries which were already in process in an attempt to pull in as many money as possible. (it felt really weird).
They also kept on the management to try and find out what went wrong when and to sort out the fiscal part of the bankruptcy.
The management got the boot as soon as responsibility were place (CEO and his wife, the woman in charge of the money) and the skeleton crew at the end of the 14 days.
No bonuses. No extras. My due money as well as a 4 month dismissal paycheck were payed from a money pit called Lønmodtagernes Garantifond (a sort of insurance that all companies have to pay to in order to secure the workforce from an economical standpoint in case of bankruptcy, does the US have something like that?).
It was all very civilized. Aside from the paperwork. That killed half a rainforrest. Thanks to my union for helping out with that.
However when all was said a done, and the books had finally been made up (the executors and their accountant gave up on finding the last debts this august. The bankruptcy was officially declared september 6th 2010) almost two years to the date
the dept was (in danish currency) approx. 45.000.000 dkr and most likely closer to 50.000.000.
The books were apparently too tangled to get all the dept and the CEO and wifey weren't cooperating. Despite their promises to our version of the White Collar Crimes unit, Bagmandspolitiet.
In comparison the executors only expect about 5.000.000 in the plus which, when all is said and done, the smaller creditors wont see a dime. I have later heard that at least one of them went belly up as well and I cant help but feel that this was caused by the dept owed by my old company. Or at least this unpayed dept contributed strongly.
I've simplified it a bit as the debt was combined from 2 different sister companies that all went bust when the mother company went down.
My point is, that my personal experience with a bankruptcy means that the executors tries to save as many money as possible(if they are doing their jobs right), that even with the sales of brand names and recipes its going to take a while to get the ins and outs of what went wrong where and that a lot of little people are going to get hurt in all this.
And bankruptcy tends to cascade to the companies that the belly-up one owe money or products to. As the saying goes: **** rolls down hill. Fast.
And in todays economic climate, it is my impression that most companies tends to walk the edge in regards to money.
My problem, and I guess question, is what is going to happen to the little people? What are their insurances on the short terms in relations to suddenly missing paychecks etc.?
I have to admit that I've lost track of this thread, so if this has already been answered, please point me to the post.
When the company I worked for went bust, the executors kept on a skeleton crew in a period (14 days)(I got called in on a project basis as well) to finish the contracts/deliveries which were already in process in an attempt to pull in as many money as possible. (it felt really weird).
They also kept on the management to try and find out what went wrong when and to sort out the fiscal part of the bankruptcy.
The management got the boot as soon as responsibility were place (CEO and his wife, the woman in charge of the money) and the skeleton crew at the end of the 14 days.
No bonuses. No extras. My due money as well as a 4 month dismissal paycheck were payed from a money pit called Lønmodtagernes Garantifond (a sort of insurance that all companies have to pay to in order to secure the workforce from an economical standpoint in case of bankruptcy, does the US have something like that?).
It was all very civilized. Aside from the paperwork. That killed half a rainforrest. Thanks to my union for helping out with that.
However when all was said a done, and the books had finally been made up (the executors and their accountant gave up on finding the last debts this august. The bankruptcy was officially declared september 6th 2010) almost two years to the date
the dept was (in danish currency) approx. 45.000.000 dkr and most likely closer to 50.000.000.
The books were apparently too tangled to get all the dept and the CEO and wifey weren't cooperating. Despite their promises to our version of the White Collar Crimes unit, Bagmandspolitiet.
In comparison the executors only expect about 5.000.000 in the plus which, when all is said and done, the smaller creditors wont see a dime. I have later heard that at least one of them went belly up as well and I cant help but feel that this was caused by the dept owed by my old company. Or at least this unpayed dept contributed strongly.
I've simplified it a bit as the debt was combined from 2 different sister companies that all went bust when the mother company went down.
My point is, that my personal experience with a bankruptcy means that the executors tries to save as many money as possible(if they are doing their jobs right), that even with the sales of brand names and recipes its going to take a while to get the ins and outs of what went wrong where and that a lot of little people are going to get hurt in all this.
And bankruptcy tends to cascade to the companies that the belly-up one owe money or products to. As the saying goes: **** rolls down hill. Fast.
And in todays economic climate, it is my impression that most companies tends to walk the edge in regards to money.
My problem, and I guess question, is what is going to happen to the little people? What are their insurances on the short terms in relations to suddenly missing paychecks etc.?
I have to admit that I've lost track of this thread, so if this has already been answered, please point me to the post.
Richard Masters
Illuminator
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I hope all Hostess products disappear from the face of the Earth.
Sledge
Grammaton Cleric
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We'll always have the adverts.
Yes, but it depends how much you are in the hole for that debt.
A company owes $850 million. If I buy that debt from you for a nickel then you as the creditor who was previously owed $850 million give up all rights to that debt.
I collect the interest payable on that debt so at, say 5%, in the first year I collect $42.5 million, not a bad investment on my original investment.
Furthermore, when I buy that debt from the company, I add the amount I paid for the debt to the debt. I take out the nickel I paid for the debt and the company is now $850,000,000.05 in debt, and required to pay interest to me.
A more realistic example would be a company that's $500m in debt and I buy the debt for 50 cents on the dollar ($250m). From a headline point of view I have invested $250m in the company but I immediately transfer that $250m to the company's debt so the company is now $750m in debt and paying interest on that $750m to me.
I'm not a penny out of pocket.
Correct, but depending on how much you paid for the debt, the interest rate can become very attractive indeed. In the admittedly silly example fo buying out the debt for a nickel, you'd be getting $42.5m a year in interest payments for your investment of a nickel (which was in any case added to the debt so you got that money back). The debt is still owned by the company and the company is responsible for paying the interest.
I'm sorry, I didn't explain myself well enough. In addition to paying the management team (CEO and directors) it is quite usual for there to be an additional "management fee" that can run to millions of dollars which would be payable to the private equity company for the "expertise" they bring to the turnaround process.
For example, a small company which was one of my clients was part owned by a private equity company. Every year they paid around 10% of turnover to private equity company as a management fee. This was in addition to any payroll for the company's managers and directors
My point was in response to Wildcat who was suggesting that if the assets of the company was sold for less than the outstanding debts then the current owners and investors would make a loss.
If you can buy the company and debts cheaply enough then it doesn't matter whether you even attempt to turn the company around, you can still make a profit. It's the standard practice of asset stripping. In effect, if it's done correctly, there is no risk to the investor because:
- Any money they have invested in the company is added to the company's debt and paid back to the investor
- While the "zombie" company is going through the final death throes (which can take years), you are being paid interest on the debt and perhaps management fees as well
- Eventually you know you can sell the plant, brands and intellectual property for a significant sum
Correct, but just to run through an example:
Start:
The company is in debt $500m to the original creditors
The original creditors are owed $500m
I owe no money
The buy out
The original creditors accept $250m (50 cents on the dollar) to settle the debt
I borrow $250m to pay off the original creditors and buy the debt
The company now owes me $500m (because I bought the debt)
I owe the bank (or whoever I borrowed the money from) $250m
The debt transfer
I transfer my $250m debt to the company
The company now owes $750m, $500m to me and $250m to the bank
I owe nothing
So if it all goes horribly wrong, I have lost none of my own money and I owe nothing to the bank. In the meantime I collect the interest due on $500m.
Nosi
Illuminator
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Most Hostess products were marketed to kids and a quick easy option for the busy mom. Toss a Hostess product in a kids' lunch box and the kid is happy and Mom saves time. Nowadays with so many fat kids, parents are more likely to drop a banana in as a time saving food. Or cut apples.
Gawdzilla Sama
121.92-meter mutant fire-breathing lizard-thingy
While I was in Wal-mart yesterday I noticed a display of "Creme-filled Golden Cakes" under the Wal-mart house label.
It seems that Hell is back in session.
It seems that Hell is back in session.
jhunter1163
beer-swilling semiliterate
At our local supermarket there's a prominent display of Little Debbie's "Cloud Cakes". I bought a box (for research purposes only) and they are, in all respects, indistinguishable from Twinkies except that they appear to be slightly smaller than the late lamented Hostess product.
It appears that Twinkies will soon be back on shelves though; the auction for the brand will soon take place.
It appears that Twinkies will soon be back on shelves though; the auction for the brand will soon take place.
Scopedog
Muse
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This makes no sense as a sustainable business model for private equity. "If it all goes horribly wrong" the private equity firm will be okay but the bank is not going to get some or all of their $250m back. How many times is the bank going to keep lending $250m to vulture capitalists knowing that the vulture capitalists are just going to transfer the debt to a failing company then force it into bankruptcy? Why would a bank keep giving away $250m?
Scopedog
Muse
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So let me see if I've got this straight:
Home occupant owes $300,000.00 on their mortgage loan.
I borrow $150,000.00 from my bank to buy home occupant's mortgage loan from their bank.
I transfer my debt of $150,000.00 to the home occupant's mortgage loan.
Home occupant now owes $450,000.00 and they have to pay it back to me and my bank.
I live in the house with the home occupant and run the house. I also charge the home occupant additional fees for running the house.
If the home occupant can't afford to pay me and my bank I just take my stuff and leave and the home occupant sells the house at a loss. I then borrow another $150,000.00 from my bank and do this again at another house.
My bank loses most or all of the $150,000.00 I borrow but I'm sure they'll keep lending me $150,000.00 to buy mortgage loans and transfer my debt to the home occupant's mortgage loan and live in the house and run the house until they can't afford to pay us and have to sell the house at a loss.
Did I get this right?
Home occupant owes $300,000.00 on their mortgage loan.
I borrow $150,000.00 from my bank to buy home occupant's mortgage loan from their bank.
I transfer my debt of $150,000.00 to the home occupant's mortgage loan.
Home occupant now owes $450,000.00 and they have to pay it back to me and my bank.
I live in the house with the home occupant and run the house. I also charge the home occupant additional fees for running the house.
If the home occupant can't afford to pay me and my bank I just take my stuff and leave and the home occupant sells the house at a loss. I then borrow another $150,000.00 from my bank and do this again at another house.
My bank loses most or all of the $150,000.00 I borrow but I'm sure they'll keep lending me $150,000.00 to buy mortgage loans and transfer my debt to the home occupant's mortgage loan and live in the house and run the house until they can't afford to pay us and have to sell the house at a loss.
Did I get this right?
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balrog666
Eigenmode: Cynic
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Yes, you have captured the essence of the fallacious argument and its missteps correctly.
lomiller
Penultimate Amazing
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The lender structures the new debt so is first in line when assets are liquidated so they typically get their money back and make money off interest payments in the meantime.
The other thing to remember is that while the debt load is high, it’s at, not above, the threshold for what the company can finance. If the company can increase its sales or decrease its costs it can eventually pay that debt down and survive. These companies typically struggle along until the next economic downturn at which point they don’t have enough income coming in to keep lenders happy and get liquidated.
lomiller
Penultimate Amazing
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Nope. A better analogy would be:
A family having trouble making payments on a $300K loan on a home valued at $500K.
You borrow another $150K from the bank and lend it to them, so they are able to keep going. You and the bank keep getting you loan payments which mostly go towards financing costs.
The housing market drops 10% so the bank forecloses and sells the house for $450K to get its investment back.
You and the bank are out clean and have made money on the financing charges.
It depends on how often they get their money back and how much interest they make. The vulture capitalists don't go in with the intention to fail, ideally they want to succeed but they've at least covered themselves in the event that they do fail. If every such venture failed then you're correct, the banks would either refuse to lend or charge ruinously high interest rates to do so. Enough of these restructuring exercises succeed well enough that the banks on average make an acceptable return.
One of the things to come out in the UK as a result of the credit crunch and bank bailout was that the banks had made a lot of very bad loans which has resulted in the value of these loans being written off and/or the financial instruments secured against these loans being made worthless. The upshot of this is that companies who want to borrow to invest have found it too difficult or too expensive.
With respect to the last point. Interest rates are so low at the moment that many of these companies are able to struggle along continuing to pay their interest but unable to actually make any difference to the company itself.
These are termed "Zombie Companies" and some economists claim that they are having a significant drag on the economy as a whole.
Here's a commentary article from the Financial Times:
http://www.ft.com/cms/s/0/7c93d87a-58f1-11e2-99e6-00144feab49a.html#axzz2K0pMDOK2