Fri: Private Equity Creates Public Pain

The Brotherhood of the Traveling Pants

“Some of the greatest days of my business career were the toughest times, but I enjoyed waking up every single morning and go to battle,” he said. “A lot of people say to me today — the toughest business people, people that you know about — ‘Could I ask you a question? How do you do it?’ I say, ‘Do what?’ ‘How do you get up in the morning and put your pants on? Why do you put the pants on?’ I’ll explain it to you someday. ‘How do you do it? How do you get up? How do you do it?’”

Explain it To Us Now! Show Us How You Put Your Pants On.

Private Equity Creates Public Pain

Angry that your favorite Red Lobster closed down? Wall Street wizardry had a lot to do with it.

Red Lobster was America’s largest casual dining operation, serving 64 million customers a year in almost 600 locations across 44 states and Canada. Its May 19 bankruptcy filing and closing of almost 100 locations across the country has devastated its legion of fans and 36,000 workers. The chain is iconic enough to be featured in a Beyonce song.

Assigning blame for company failures is tricky. But some analysts say the root of Red Lobster’s woes was not the endless shrimp promotions that some have blamed. Yes, the company lost $11 million from the shrimp escapade, its bankruptcy filing shows, and suffered from inflation and higher labor costs. But a bigger culprit in the company’s problems is a financing technique favored by a powerful force in the financial industry known as private equity.

The technique, colloquially known as asset-stripping, has been a part of retail chain failures such as Sears, Mervyn’s and ShopKo as well as bankruptcies involving hospital and nursing home operations like Steward Healthcare and Manor Care. All had been owned by private equity.

Asset-stripping occurs when an owner or investor in a company sells off some of its assets, taking the benefits for itself and hobbling the company. This practice is favored among some private-equity firms that buy companies, load them with debt to finance the purchases and hope to sell them at a profit in a few years to someone else. A common form of asset-stripping is known as a sale/leaseback and involves selling a company’s real estate; this type of transaction hobbled Red Lobster.

In recent years, private-equity firms have invested heavily in all areas of industry, including retailers, restaurants, media and health care. Some 12 million workers are employed by private equity-backed firms, or 7 % of the workforce. Companies bought out and indebted by private equity go bankrupt 10 times more often than companies not purchased by these firms, academic research shows. In a report this month, Moody’s Ratings said leveraged buyouts like those pursued by many private-equity firms drive corporate defaults higher and reduce the amounts investors recover when the companies are restructured.

Who Doesn't Like a Good Lobster Roll?

How private equity rolled Red Lobster

We Don't Live in a Sane World

Trump: I am conspiring with Putin to keep an American hostage so I can win the presidency

In a sane world this would be utterly disqualifying

Maybe He Just Had the Urge to Purge

It began last month with the arrest of a Russian deputy defense minister. Then the head of the ministry’s personnel directorate was hauled into court. This week, two more senior military officials were detained. All face charges of corruption, which they have denied.

The arrests started shortly before President Vladimir Putin began his fifth term and shuffled his ally, longtime Defense Minister Sergei Shoigu, into a new post.

They immediately raised questions about whether Putin was reasserting control over the Defense Ministry amid the war in Ukraine, whether a turf battle had broken out between the military and the security services, or whether some other scenario was playing out behind the Kremlin’s walls.

There Once Was a Man From Nantucket. Who Tried to Save His Home with a Bucket.

This month, residents of the island of Nantucket, a storybook New England coastal retreat located 30 miles off the coast of Cape Cod, gathered for their annual town meeting and quietly acknowledged a mounting eco-crisis.

Erosion, which is typical for most islands, is now increasing in severity, threatening to reshape Nantucket's downtown and wash away the homes sitting on its edge. Permanent residents formally approved the designation of the entire island as an "Islands Coastal Resilience District," with hopes that state-backed help could follow.

A lot of real estate value is at stake. Over the past two centuries, Nantucket has gone from a whaling town to a hippie refuge to a holiday hot spot for billionaires. Its year-round population hovers at about 14,000, but over the summer, it balloons to 80,000 as the likes of Blackstone's Steve Schwarzman and former Google CEO Eric Schmidt, who own picturesque grey-shingled mansions lined with blooming hydrangea, descend on the island in their private jets, sporting Nantucket red and boat shoes.

But a changing climate is exacerbating the ever-present threat of erosion, and it's claiming more victims. Last month, real estate investor Barry Sternlicht had to demolish his home to prevent it from falling into the ocean; others with valuable beachfront properties have paid millions to move their houses further away from the sandy coast.

And it's only expected to worsen in the "foreseeable future," C. Elizabeth Gibson, the town manager, wrote in the 2021 Coastal Resilience Plan. "The risks for Nantucket, a maritime community, are significant."

In total, sea level rise, coastal flooding, and erosion are estimated to cause over $3.4 billion in cumulative damages to Nantucket over the next five decades, according to the plan.

But demand for properties has remained sky-high on the idyllic island. Last year's median home sale price was $3.2 million, up from $1.9 million five years prior, according to data from local firm Fisher Real Estate. Twenty-seven percent of the homes sold cost more than $5 million.

Kicks, Just Kicks, Getting Harder to Find

George Conway:

So, just for kicks, I put up a billboard a few miles south of Palm Beach on I-95 South, perfect for anyone happening to travel from Mar-a-Lago to Doral to, say, play golf. Right around Exit 64, I believe. They’re going to send me better photos later.