Can someone explain something about private equity?

[Narkos]

When private equity borrows money for a leveraged buy out, does the company they buy assume full responsibility for that borrowed money? I guess, why couln't the distressed company just borrow money on its own?

[cantbeserious]

1. Traditional Sources Of Capital Would See The Investment As Too Risky

eom

[Celebration]

2. the order it goes in

Private Equity buys Company.

Private Equity cuts costs to the bone.

Company looks very profitable for short time and is able to borrow money because of all the "efficiencies" placed on it, and private equity firm sells company to the private buyers, and company has lots of leverage.

Private Equity firm takes out bonuses for themselves.

Company either goes bankrupt because it was run into the ground by private equity managers and cost cutting, by downturn in the business or economy combined with the leverage, OR it pays off handsomely because of the leverage.

Private equity isn't as flourishing today as it was during the credit boom.

[bemildred]

3. Yes, it is OPM they play with.

They don't call it "Vulture Capitalism" for nothing.