Re:How vulture capitalists ate Toys 'R' Us
by JumpCrisscross on Monday April 23, 2018 @04:00PM
(#16906862)
> they receives less than 20% of that interest?
They hold less than 20% of the debt. Most of their investment went in as equity. That's wiped out.
> LBO firms do not give low interest loans to their targets
PE buys equity and subordinated debt. Sub debt has high rates and wonky structures. In this case, I believe it was pay in kind, "a type of high-risk loan or bond that allows borrowers to pay interest with additional debt rather than cash" [1]. Nice feature if the debt is repaid. Less fun when it's wiped out.
They hold less than 20% of the debt. Most of their investment went in as equity. That's wiped out.
> LBO firms do not give low interest loans to their targets
PE buys equity and subordinated debt. Sub debt has high rates and wonky structures. In this case, I believe it was pay in kind, "a type of high-risk loan or bond that allows borrowers to pay interest with additional debt rather than cash" [1]. Nice feature if the debt is repaid. Less fun when it's wiped out.
[1] https://en.wikipedia.org/wiki/PIK_loan