Professional Documents
Culture Documents
Eileen Appelbaum
Co-Director
Center for Economic and Policy Research
Hill Briefing
April 10, 2018
Roadmap to Presentation
4
Case: Toys ‘R US
• July 2005 LBO: 3 funds of PE firms Bain & KKR and Vornado
– Before:
• Debt = $1.86 B, Equity = $4.30 B, Enterprise value = $6.16 B
• 30% debt, 70% equity – typical of publicly traded companies
– After:
• Debt = $5.2 B, Equity = 1.4 B, Enterprise Value = $6.6 B
• 78% debt, 22% equity – vulnerable to financial distress
• Each fund put in $433 M; Bain $43 M, KKR $10 M, Vornado (??) ~10M
• September 2017 – Toys ‘R US declares bankruptcy
– Losers:
• Hundreds of stores closed, thousands of workers lost their jobs
• Pension funds, other PE investors wiped out; lenders take haircut
– PE firms? Each collected $61M monitoring fees; KKR shared 58% to LPs
• Bain made $61 - $43 = $18M; KKR netted $24 - $10 = $14M
What Can Public Policy Do Now?
• Limit the excessive use of debt
– Bank regulators limit amount of debt banks can put on company
– But need to limit debt from all sources
– Limit tax deductibility of interest (Tax bill took step in this direction