Unless the acquired company is obviously healthy enough to service the debt through to maturity, or the bank is really stupid, the acquiring company has to put up non-trivial collateral.

Or put another way, if the acquiring company has no risk, then the bank putting up the leverage has it. The risk doesn't just disappear.

There was very little risk for the acquiring company or banks who loaned the money. Bain partnered with the real estate company Vornado Realty Trust in the Toys-R-Us deal. The bank loans were secured by Toys-R-Us assets that will be auctioned off, and Vornado will re-develop the land that Toys-R-Us stores sit on - everybody wins. Except for the 30,000 Toys-R-Us employees of course.

If you can buy a company with the sum of money you can raise by mortgaging the real estate it occupies, the implication is that the company is worth less than this real estate. Considering the kind of real estate Toys-R-Us shops occupied, this is not a good look for them, nor does it speak well for the employees' prospects had the LBO not happened.

The US used to have these businesses called drive-in movies. You could pack your car full of friends and snacks, then pick a spot in a grass field where you had a picnic while watching a movie. The value of the real-estate these businesses sat on far exceeded the return of operating the drive-in, so drive-ins no longer exists within an hour drive of most people. The US is poorer for no longer having these staples of 1950's and 1960's culture.

Similarly, Toys-r-Us was part of the US culture and has been destroyed for a few million in profit because it made economic sense. Hardware stores and book stores will also disappear from our culture, is this the society we want? People band together to support opera and symphonies, I would rather save drive-ins and hardware stores since they are more important in almost everyone's lives.

That's a rose-tinted view of things. There's plenty of dirt-cheap land just outside all but the biggest American towns, but no drive-ins on them. Seriously, without knowing you, chances are you and a couple of friends could pool your savings and buy a plot and setup a drive-in theatre. But chances are you'd fail. Land increasing in value is far from the only thing that changed that affected drive-ins. A car (and especially the sound options in one) is far from an ideal place to enjoy a movie from, streaming (or before that, renting a video or just watching on broadcast TV) on a large colour TV is much, much better. Modern, multiplex theatres provide a technically far, far superior experience to either. Attitudes to pre-marital sex have decreased the value of having somewhere to legitimately park in the dark for an extended period.

Many analogous things are true for toy stores and hardware stores etc. And people are banding together to support things that aren't commercially viable, the closest thing to hardware stores in this regard is probably hacker spaces.

And to answer your question directly, yes, I strongly prefer to live in a society where businesses are allowed to fail when they've run their course rather than being kept on life-support for vague past-romantic reasons.

You are probably right about drive-ins, and if I like them so much I should create a non-profit, co-op one.

I completely agree non-viable businesses should fail just like we let insolvent banks and automakers...well those were an exception.

It comes down to what our core beliefs are as a society. If we want to maximize private profit, why aren't there slot machines and cigarette vending machines at every bus stop? Toys-R-Us was a viable business that was destroyed for a relatively small profit - should that behavior be: illegal, discouraged by taxes, or encouraged with government backed loans? Those are the kinds of questions we could be asking. Our current regulatory environment is not the same as what it was in the past or what it will be in the future.

If the value of the real-estate was higher, why is it sitting unused?

https://edition.cnn.com/travel/article/abandoned-drive-in-mo...

> The US is poorer for no longer having these staples of 1950's and 1960's culture.

Veering a bit off topic, but they're coming back in some locales. Multiple have opened in my area.

But is there risk when using the company as collateral? Isn't that the point of collateral? Or do they still have to put up the difference between the current value of the company and the debt?