If the company wasn’t able to borrow money for itself, a wrapper company could which would still have very closely the same effect as being an asset-poor borrower.
Which would increase the rate of defaults (if they are authorized in the first place) and in turn increase interest even further. I guess the PE is always maxxing out the leverage on every deal at _just_ the projected break-even point for loan repayment? But that leaves no room for error or changing market conditions which also increase the rate of defaults and so on.
That's exactly what happened famously with Red Lobster. PE sold off all the underlying real-estate to get the initial sugar-high and replaced it with a leasebacks. Those leases had escalating costs and fixed terms, which made it difficult to adapt to changing trends, and was a big contributor in what ultimately sunk it all.
And everyone gets their management fees until people start asking their money back...
Great another financial crisis.
Pure parasitism.
Note that from the lender's perspective, the risk is the same and in a perfect-information universe could be mitigated by charging higher interest. The problem for society is the externality that the business's services get worse.
Sounds like a problem for whoever is providing the financing. Not really my concern unless you're saying there's some systemic problem it causes like with mortgage securitization during 2007. The lender will charge a high interest rate if what you're saying is true.
It’s literally a way to extract revenue from our broader social institutions by spreading the pain across so many people that individuals don’t complain (or, in some cases, don’t even understand how it harms them).
Has everyone forgotten the social contract? We do not exist as communities to make a small number of people richer. If the trade doesn't work for all involved, we change the rules.
In fact, they'd much rather single-action foreclose as they'll likely get a house than force you into bankruptcy where they might not even get that.