Trying to understand leveraged buyouts: why are they done, and why, legally, can it happen even if the people in the company don’t want it to happen? One of my friends was making noise about how Toys R Us didn’t go under due to a bad business model. He said it was due to a leveraged buy out and the company being saddled with debt. How does that even work?
We don’t really know. Which isn’t to say that people don’t know, I mean, there’s definitely some knowledge that Mitt Romney’s company killed it by doing a leveraged buyout in 2005, but we don’t really understand the whole leveraged buyout thing and why it’s allowed given that it can destroy companies at minimal risk to the hedge fund doing the destruction. Seems like something government should be regulating better, but isn’t.
Here’s NBC News.
More detailed info on how leveraged buyouts are supposed to work and that it didn’t in this case.
The Atlantic also explains at length.