Bankruptcy for Billionaires

By Gross, Daniel | Newsweek, September 10, 2012 | Go to article overview

Bankruptcy for Billionaires


Gross, Daniel, Newsweek


Byline: Daniel Gross

When Bain walks out on its debts, it's business as usual.

On Aug. 29, Contec Holdings, a Schenectady, N.Y., company that repairs cable boxes, filed a prepackaged bankruptcy plan--a court-sanctioned deal with lenders in which the firm will reorganize, wipe out up to $300 million in debt, and move on under new ownership.

Happens every day. When businesses and consumers reach the point where they can't scrape up enough funds to stay current on their debt, they plead for relief. In 2011, 9,772 businesses filed for Chapter 11 bankruptcy protection, and nearly 1.4 million consumers filed for personal bankruptcy.

Contec was acquired by Bain Capital in 2008, years after Mitt Romney had left the private-equity firm. But the timing of the bankruptcy filing--coming a day before he was poised to accept the Republican nomination for president--was inconvenient. It also highlighted a larger issue. We've heard about "strategic defaults" in housing: when the current value of a home is hopelessly below the total mortgage, some owners stop making payments on their loans even though they could afford to.

Corporate gunslingers do the same thing. When a debt-laden company (like Contec) owned by a private-equity firm (like Bain) runs into trouble, the bespoke-suited bankers have a few options. They can roll up their Thomas Pink shirtsleeves and attempt a turnaround, deploy idle money in their funds to shore up the company, or sell profitable investments in the fund to raise new cash. Or the guys who own the private-equity firm--hell-bent on salvaging the investment and preserving jobs--could use part of their vast fortunes to pay the debt.

They rarely do. In fact, companies owned and effectively managed by billionaires routinely fall behind or default on their obligations, all for want of a few million dollars. LifeCare Holdings, a hospital chain owned by the Carlyle Group, missed a $5.5 million interest payment due Aug. 15 on $119.3 million in notes. It's worth mentioning that Carlyle's top three executives earned a combined $400 million in 2011.

Walking away from bad debts is a feature--not a bug--of the industry. This year Standard & Poor's has tallied 29 major debt defaults by large U.S. companies. By my count, at least 14 were backed by private-equity firms.

The big players rarely suffer professional, legal, or social repercussions if they fail to bail out debt-laden companies in their portfolio. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Bankruptcy for Billionaires
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Author Advanced search

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.