Remington Arms was founded in 1816 (Wikipedia). It survived ups and downs in the U.S. economy until the private equity looters got their hands on it starting in 1993. After the extraction of roughly 200 years of built-up enterprise value, the debt-laden company was fragile and had a tough time weathering the Trump Firearms Slump (see “Cerberus’s Remington Debt Fizzles as Trump Cools Firearms Fervor”). Now it is time to cheat all of the bondholders via a Chapter 11 bankruptcy filing: “U.S. gunmaker Remington seeks financing to file for bankruptcy: sources” (Reuters).
When will investors learn not to buy bonds from these crippled-by-private-equity companies?
[How does private equity looting work? PrivateCo “buys” a company from the existing shareholders for $300 million. Then the company borrows $800 million, of which $750 million is paid to PrivateCo as advisory or management fees and/or dividends (PrivateCo is the only shareholder). A few years later it turns out that the company can’t pay principal and interest on the $800 million in debt so it is time to go Chapter 11 and wipe out the bondholders. That’s the classical approach, but it needs to be disguised a bit so that the bondholders can’t sue. Donald Trump actually tried to shut down this party by (a) making private equity guys pay taxes at the same rates as everyone else (closing the “carried interest” loophole), and (b) eliminating the deductibility of interest for corporations. Congress, however, wouldn’t go along. It is tough to see what value is created via leveraging up these ancient companies. If an investor wanted a leveraged investment in a stodgy company, he or she could simply buy the stodgy company on margin.]