Wednesday, June 23, 2010
What does Wall St do with $500 Billion
If you thought something like invest in American business go to the back of the room and play with yourself. The NY Times has a look at the plight of the poor private equity companies, floating on an ocean of cash and they can't find anyplace to put it.
Corporate buyout specialists generally raise money from big investors and then buy undervalued or underappreciated companies. To maximize investment returns, they typically leverage their cash with loans from banks or bond investors.That reckoning usually means going public with a company that has been sucked dry or a bustout in bankruptcy court.
In recent years, private investment firms have amassed business empires rivaling the mightiest public corporations, buying up household names like Hilton Hotels, Dunkin’ Donuts and Neiman Marcus.
Critics contend that leveraged buyouts can saddle takeover targets with dangerous levels of debt. But unlike indebted homeowners, highly leveraged companies under the care of private equity have so far dodged the big bust many have predicted. After an unprecedented burst of buyouts during the boom leading up to 2008, a vast majority of these companies are hanging on. Whether they will avoid a reckoning is uncertain.
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