from Contra Corner:
This eruption of late cycle bubble finance hardly needs comment. Below are highlights from a Bloomberg Story detailing the recent surge of leveraged recaps by the big LBO operators. These maneuvers amount to piling more debt on already heavily leveraged companies, but not to fund Capex or new products, technology or process improvements that might give these debt mules an outside chance of survival over time.
No, the freshly borrowed cash from a leveraged recap often does not even leave the closing conference room—it just gets recycled out as a dividend to the LBO sponsors who otherwise hold a tiny sliver of equity at the bottom of the capital structure. This is financial strip-mining pure and simple—-and is a by-product of the Fed’s insane repression of interest rates.
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