[goatinaboat]

The problem is that when private equity buys a company, it usually uses lots of loans to do so

It can’t be as simple as that because who is making these loans to companies that are about to go bankrupt? Why would they do it?

[Spooky23]

They self-deal. The loans are used to pay management and other fees from affiliates entities.

When the parasite finishes the digestion of the host and it goes bankrupt, they get to write down the losses against the money made on those fees, and the actual losses are distributed amongst the partners in the syndicate.

[coliveira]

Companies that may go bankrupt are paying higher interest than normal, stable SP500 companies. This is attractive to people who want to get higher returns at the expense of additional risk. In other words, the existence of these loans is a necessity due to the way the market operates.