Re:Behind the financial maneuvering at Hostess
by lambertsimnel on Monday December 12, 2016 @07:02PM
(#13163288)
I thoroughly agree with your 1st & 3rd paragraphs, but the situation described in your 2nd paragraph sounds like one in which the lenders are irresponsible, whereas the owners of the borrower alone seem to usually be blamed.
Re:Behind the financial maneuvering at Hostess
by Retric on Tuesday December 13, 2016 @11:20AM
(#13167914)
The second paragraph was exaggerated for effect. However, companies are not limited to bank loans, so it may be the bond market taking on these risks. Further, there is an information asymmetry with loans so a company may be cyclical in nature yet look really good over the last five+ years.
If a company generates -1 to 10 billion per year and has 2 billion cash on hand and assets worth 5 billion, they can handle several bad years and will tend to be profitable and very stable. If someone then says they can probably make debt payments of 5 billion a year then they might be able to do that for a while, but it will eventually cause them to fail.
The important consideration is you have already made back your investment at this point so the owners don't care. In fact if the company fails that suggests you succeeded in extracting more money than it was worth.