On Mitt Romney's Defense Of Bain Capital And The Private Equity Industry - Here Are Some Facts

Tyler Durden's picture

Lately, Bain founder and GOP presidential candidate Mitt Romney has found himself in a spirited defense of the private equity industry, doing all he can to spin decades of data which confirm, without failure, that PE Leveraged Buy Outs are nothing but "efficiency maximizing" transactions whose only goal is the "maximization" of EBITDA in the pursuit of dividend recap deals, IPOs or outright sales, while loading up the company with untenable amounts of leverage. All this with a 3-5 year investment horizon, which ignores the long-term viability of a company and seeks to streamline (read fire as many as possible) operations as quickly as possible in the goal of maximizing short-term returns. We wish him luck in his endeavor. As for the other side of the equation, we recreate a post we penned back in November 2009 which analyzes just how effective the mega-LBOs have been for the economy, and the workers involved. In other words - the facts. In a nutshell, here they are: "The Disastrous Performance Of Private Equity: Of The Top 10 LBOs, 6 Are In Distress, 4 Have Defaulted." Read on for the full details.

From November 6, 2009

One sometimes wonders why the idiots in Washington have still not bailed out the private equity industry. After all, for the low, low price of about $100 billion (which is about how much keeping Fannie on life support will cost US taxpayers in the first quarter of 2010 alone), Congress can ensure that thousands of PE associates, VPs and MDs can once again frequent Hustler Club, order dozens of bottles of Cristal at Lotus, and eat sushi straight off geisha bodies at Bar Masa. In other words, a return to those oh so difficult days of 2007. Furthermore, looking at the track record of PE, especially as characterized by its 10 largest deals in history, one can make the mistake that KKR, Apollo, Bain, Carlyle and Providence are all employing exclusively government workers: therefore the government would in essence be bailing out itself. 

For those who are interested in more information, Moody's has compiled a useful report, entitled "$640 billion & 640 days later: how companies sponsored by big private equity have performed during the U.S. recession." The track record is simply abysmal: Of the top 10 deals, only Hertz, HCA and First Data are considered "stable" which is actually saying a lot ("stable" by Moody's means these firms are likely about to have an alien burst out of their ribcage). For fear of being sued with impunity by the benevolent IR team at Hertz we won't say much, save to say that the firm is exclusively reliant on a stable economy, healthy business travel, vibrant tourism and the lack of default of fleet car makers, and which is leveraged up its colon in double digit leverage multiples. Also, saying HCA and FDC are "stable" in public and one risks being involuntarily committed. Therefore one can say that virtually all of the blockbuster LBO deals are on the verge of collapse/bankruptcy/default/insolvency, etc. If that is not deserving of communist handouts courtesy of Comrade Obama, nothing is.

And while these companies life expectations are limited at best, regardless of how Hertz' lawsuit against anyone who has a sell rating against the firm goes, the biggest threat is to the entire PE industry, which just like the CRE space, will be facing a massive refi threat into 2014. Between 2011 and 2014, there is roughly half a trillion in LBO debt maturing. Add that to the $1.5 trillion in bank debt due for rolling, and the roughly $3 trillion in CRE debt that is also supposed to be refinanced, and one can see how the next president will have his arms full as he/she will need to find a way to roll about $5 trillion in debt without the benefit of securitizations. Furthermore, since the economy will be on stimulus #10 by then courtesy of a drunk with power Obama, America will be on fast track to sovereign and corporate Armageddon.

Anyway, here is the chart that shows the upcoming debt maturities:

And since no Zero Hedge post is complete without ridiculing someone away from the Administration or the Fed (the last two are like shooting fish in an excess liquidity barrel), here is the rating of the worst of the worst PE firms. Not surprisingly, Cerberus is the worst PE firm in the history of the universe, followed promptly by Leon Black's Apollo, of whose 20 deals initiated before 2008, 5 are in distressed and 8 are in default. Hey Calpers, how is that evaluation of your Apollo relationship going?

And as we are confident that the White House will be all over this to find their next bail out target (those $1.1 trillion in excess reserves have to hit the money in circulation somehow), we will present you will the full Moody's report. If, in addition to this, our dear White House readers are in need of reading, comprehension and math lessons, those can be purchased at our Paper Street headquarters: we accept compensation in the form of perpetual, non-accruing, non-PIKing TLGP zeros.

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LawsofPhysics's picture

So, as a CEO/company founder Romney is quite competent at fleecing investors.  Much more so than Obama as Obama has no "real world" experience.  Now wonder the MSM loves this guy.  Fucking Awesome.

Joe Sixpack's picture

Obama has 3 years experience fleecing "clients" in the federal corporation, and has fleeced trillions more than Romney ever did.

Mercury's picture

The investors did all right, it's the companies that didn't do so hot.

Still better than your average collection of government programs though. The resoucrces of a failed/distressed company can be re-allocated but government programs never fail in the sense that they actually cease to exist after not delivering the goods (see FRE, FNM for starters).

We'll see who has gotten fleeced ten years post the Legal Take Out of healthcare, student loans, real estate, banking etc.


Canaduh's picture

Bain is a swell group of chaps, at least according to David Gergen.

Anyone who regularly attends Bohemian Grove knows what they're talking about.

GeneMarchbanks's picture

Mitt Rmoney says 'corporations are people'.

Mike Milken is standing proud somewhere.

Don Birnam's picture

"You're a two-bit pirate and greenmailer. Nothing more. Gekko ! Not only would you sell your mother to make a deal, you'd send her C.O.D."


Born Patriot's picture

It's time to take this country BACK from these multiculturalists lead by our muslim president. Vote Ron Paul 2012!

Iwanttoknow's picture

That must be freddie's twin brother.

TheHillrat's picture

Wish you spoke up during GWB's time in office. Then you would have a leg to stand on. 

spondoolix's picture

If Romney were to get elected, maybe he would consider merging the SEC, the Treasury Dept. and the FED, and then cut the crap out of the new entity and sell it to the Chi-Coms in 3-5 years.

whstlblwr's picture

Don't understand his popularity, but for good looks, guy's an idiot.

Anyone paying attentin to new Ron Paul slur. He was set up. This guy John Tabin from American Spectator has such good picture of Ron Paul shaking hands with crazy rabbi, that was obviously a plant to scare Jewish people from voting for Ron Paul. And now pictures of handshake are making rounds on web.

I watched the fucking town hall. Ron Paul didn't know this anti-zionist guy, so Jews should feel good that if Ron Paul was an anti semite he'd know the guy and be friends with him. It looked like RP didn't understand what crazy rabbi said. RP nodded, said something like I'll give it to my wife. So good try assholes.


A town hall btw, where RP talks of support for Israel.

"The establishment of Israel came about in a movement called Zionism, and Zionism had two basic principles, one was independence and self-reliance, and I agree with those two basic fundamental premises of Zionism.

"I also don't think we should tell them what to do. If they want to have a peace treaty with their neighbor and think they can work it out, they shouldn't have to ask us for permission...they shouldn't have to ask us permission to defend their borders, that should be their business.

HedgeAccordingly's picture

The S&P's keep on rising - into pinch point  http://hedge.ly/xC0Qnb

LawsofPhysics's picture

Nice catch HA, are you predicting equities to the moon as the value of all fiat goes to "zero" or are you simply implying another round of fleecing to cover the government and corporate bonds that are coming due shortly?  Please elaborate.  Something has got to give.

Libertarian777's picture

equitites to the moon! you ever see how Zimbabwe's stock market grew. Up a couple trillion percent a few years ago.

of course we need not consider the quadrillion % decline in the value of the Zim dollar. That would never happen here because we are USA! USA! USA!

ShankyS's picture

SP - you tha man! Like I sent you yesterday, keep the FOMC schedule in mind when trading. Nothing happens without their apporval. 


Conrad Murray's picture

But, but Mitt Romney goes to church. Sure, it may be a funny church with a panty fetish, but at least he's not a socialist nigger!

Ok, ok, he's for bailouts and he crafted Obamacare, so maybe he is a socialist, but still not a nigger. Oh, wait, I know...he has great hair and all my media Massas tell me to like him! YEEHAW!

GeneMarchbanks's picture

'Growing tired of your anti-Mitt shiz' -Mormon who accidentally visited ZH.

Shizzmoney's picture

LOL - pretty much the voting public in a nusthell.

I actually think people who vote, are stupid.  I mean, its an inslut to my intelligence the pieces of shit *I* have to choose from for my leaders.  I mean, I think the only way you can run for office is to be a corporate schill.

I think in Mitt Romney's Utopian world, slavery serfdom exists and there is a tax on everything. 

AssFire's picture

Dr. Murray your work is not done: It was the "Jackson 5".

Don't forget that...I hope LaToya is next!

Good luck Dr. Murray our nation is counting on you.

Dr. Engali's picture

I just don't get how the republican establishment support this guy. They have to know that Obummer will detroy him. Maybe they don't care as long as the system is preserved.

LawsofPhysics's picture

I just don't get how you think the republican establishment is any differerent from the democratic one?

Dr. Engali's picture

Hey dickweed I don't. Don't presume that you know anything about me unless you've read my previous posts.

LawsofPhysics's picture

What an intelligent response.  I guess you should live in the present and stop implying that there is a difference, as your post clearly does.

Dr. Engali's picture

You sure are an arrogant basturd. Let me clear things up for your embryonic brain. I will type slowly and use little words for you... I do not think there is a bit of difference between the two parties. I think that the system is set up so that the wealth of the nation will be transfered to the elites regardless of who is in power. I don't think things will get better until the federal reserve is brought down.

LawsofPhysics's picture

And you sound like a really, productive, guy to work with.  Good luck bringing down the Fed with that attitude.  I can name-call too fucknut, that gets neither of us closer to bringing down the Fed (also my goal).  Again, thanks for contributing another intellegent response douchebag.  See how productive that was?

Dr. Engali's picture

You sound like a real joy yourself. Jumping to conclusions,making presumptions about other people because you try to read between the lines on a single post, to lazy to find out what the other persons position is before jumping on the attack bandwagon. Good luck with your stated goals.

LawsofPhysics's picture

Again, you miss the point.  I never attacked you at the personal level by name calling.  Try negociating your position (and we all have our own unique "positions") in person with that approach and let us all know how that works out for you.

Dr. Engali's picture

I do pretty well for myself ,because I don't make presumptions of anothers positions based on a single sentence. I try to gain an understanding of where somebody else stands before making a judgement. So when you say "I don't know what makes you think......" You are pretending to know where I stand based on a single sentence. And to use your own words..." Try negotiating your position with that approach in person and let us know how that works out for you."   Because I can guarantee you that an individual will take that just as personally as being called a less than savory name.    

LawsofPhysics's picture

Well you sure did.  Not familiar with the term "trolling" are you?

Dr. Engali's picture

Again...another presumption. Your colors are showing.

Canaduh's picture

I bet the makeup sex between you 2 is incredible.

Temporalist's picture

Probably smells like Santorum.

aardvarkk's picture

[deep breath] Aaaahhhhh, I *LOVE* the smell of a flame war in the morning!

gjp's picture

Bingo - the Republicans would far prefer President Obama to President Paul.  There's no difference between Republicrats and Democans anyway.  It's all a show.  Bread and circuses while the plebes get fleeced.

Kayman's picture

Without the Fed's free money for the past couple of decades, LBO's could never have existed.  Destruction of real capital, no gain except for the dealer.

old naughty's picture

Let's just admit that capitalism is faulted.

To err is human !

NotApplicable's picture

Pardon me, but capitalism is nothing more than producing more than you consume, saving the surplus until you chose to deploy it in a more productive manner to create more wealth that solves human needs. There is no fault in freedom, but rather in the apparatus of control that alleges to protect us from ourselves.

A free, capitalistic society allows for individuals to own all factors of production, whereas in other political systems they are owned by the state, or state-favored monopolies (the only kind). The US Constitution was supposed to protect our freedom to lead our own lives, but you can see how that is working out.

Now, where's the fault again?

NotApplicable's picture

I'm always amused at which of my comments get down-voted. At times I say things in an intentional effort to evoke responses, and they go unnoticed. Other times, I try to sharpen the focus of ideas, in an effort to make them more complete and coherent, and along come the down-votes, always without comment.

This internet is a fickle beast.

Temporalist's picture

Ride the snake friend, ride the snake.

BigJim's picture

US voters dislike any one major party holding all the cards - ie, they don't want a Dem (or Rep) president, congress, and senate. So it doesn't really matter who wins the presidency - the party apparatchiks know that just means the other party will get a slight preference win it comes to the congressional elections.

And TPTB own both sides, so they don't really care much, either.

Clark Bent's picture

A fashionable opinion no doubt, but I would be willing to try a Republican President and Congressional majorities for a few years right about now. It could not do worse. 

silverserfer's picture

I am a little happy to see my democrat congressman state in his semi annual newsletter that he is not happy with the  secret $7.5 trillion bailout of banks back in 08 and how hes is aggresivly working toward a complete fed audit. Congressman Defazio of OR. He is starting to sound like RP. I hope this gets rolling a bit more through the ranks of this abysmal congrees.  

lizzy36's picture

Political narrative is a study in hypocrisy.

Romney is a slick salesman. I have worked alongside some of the best. They give one client the buy story, the other client the sell story, put the trade on the tape, take their 3 cents and move on to the next trade.

The point is never invest oneself in one side or the other, just make money off both. 

The takeaway is, it doesn't matter whether one is GOP or Democrat, Romney or Gringrich....it is just about the money.

Tyler Durden's picture

And yet people follow their every action and listen to their every word (especially those retranslated by brand new twitter aggregators) with such focus and determination...

john39's picture

well that is the point isn't it?  if enough people figured out that the elections are a total sham... then what?

pods's picture

Then we get past Claire Wolfe's "awkward stage."


NotApplicable's picture

Still, can't shoot 'em yet!

lizzy36's picture

One listens in hopes of frontrunning any mention of a national energy policy. 

Alas, one has been waiting for such a mention since Clinton....SIGH.

Will there is always the next mideast invasion premised on the presence of WMD.

phraseshifter's picture

all pundits should be "sentenced" to a

                                                 lifetime of "words"

                                                 and solitary "punctuation!"...