It’s analogous to a mortgage in a non-recourse state. If the borrower defaults the bank (or non-bank lender) gets the leveraged company, but can’t usually go upstream.
reply> No bank would agree to such nonsense
replyOhhhh a live one! Sir do I have a wonderful bridge in Brooklyn to sell you! :)
Fun fact: banks fund this sort of nonsense constantly. I've asked about this before: why they do it. They must be making money I just don't know how. The LBO guys pay themselves massive management fees and dump the debt on the company so they walk away scott free.
My wild guess was the banks offload the eventual IPO onto investors and so make their money on the IPO fees and funneling their own clients the dead-man-walking shares. But I honestly don't know.
> wild guess was the banks offload the eventual IPO onto investors and so make their money on the IPO fees and funneling their own clients the dead-man-walking shares
replyThe banks get paid back their debt when the next PE fund buys the company or the company pays it off. Unless an IPO is being done to pay off debt, which it never is, the mechanism you describe doesn’t occur.
It's called "financial engineering" and banks and courts agree to it on the daily.
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