[cameldrv]

There are different playbooks, but one is to take a declining business and cut unprofitable parts until it becomes (at least temporarily) profitable. The debt has a higher interest rate that reflects the risk of the strategy not being successful (hence being called junk bonds).

Even in the case of bankruptcy though, the bondholders may still come out OK. Toys R Us actually made about 5 billion in debt payments in the years it was privately owned, and it took about 5 billion in debt as part of the buyout. The bondholders may not have gotten the return they were expecting, but they mostly got their principal back.

All of that said, the real problem as I see it with PE is that it's just so exploitative. The only thing that matters is the investor's money. For example, one very common strategy after a buyout is to cut quality in various forms. People may have a positive quality impression of a store or a brand, and then keep buying it even after the PE company cuts quality. It takes them a while to realize that the product they're buying is not what it once was, and so the PE firm is making money by tricking people into buying bad products.

The hospital case is just an extreme example of this where the cuts in quality lead to people getting sick and dying.