I still don’t get how a leveraged buyout is legal. It’s like the bank giving you a bunch of money and saying “don’t worry about returning it, someone else will pay it off”.
Fundamentally no different from buying a house on a mortgage - the loan is secured against the house, and if you don't repay it then the bank can seize the house but can't (at least in some states) come after you.
(The difference is that humans generally try to repay their mortgage even if defaulting would be financially better for them, whereas corporations have no such scruples)
The difference is that in personal mortgages the house isn't expected to be cash flow positive.
The bank extending a residential mortgage is securing against default with the asset (house), but they're guaranteeing the income stream (mortgage payments) against the buyer's income.
With a leveraged buyout, you potentially impinge the company's ability to generate cash (with additional debt payments and dividends)... which gets back to the parent's point about borrowing someone else's money.
> The bank extending a residential mortgage is securing against default with the asset (house), but they're guaranteeing the income stream (mortgage payments) against the buyer's income.
They're not, because they have no recourse against the buyer.
> With a leveraged buyout, you potentially impinge the company's ability to generate cash (with additional debt payments and dividends)... which gets back to the parent's point about borrowing someone else's money.
Well a mortgage is even more so by that logic, since the house has no income stream of its own.
