[SpicyLemonZest]

As the article says, leveraged buyouts of retail end in bankruptcy only 41% of the time, and most of those bankruptcies are presumably not a total loss for the banks. So it's just a matter of pricing the loans to ensure the successes cover the losses.

(Why do private equity firms want to be in this business? Because the 59% that don't fail often generate very good returns.)

[bubblewand]

> (Why do private equity firms want to be in this business? Because the 59% that don't fail often generate very good returns.)

The way they limit their own exposure to risk seems to increase the odds of the targeted business completely failing, though. I think that's the part people have a problem with.

[SpicyLemonZest]

Agreed. I'm sure there's edge cases I don't know about, but in general I think it would be better to simply not allow leveraged buyouts and let businesses that would fail without the buyout fail.

[megaman821]

What kind of rates do you need to charge to cover 41% bankrupcty odds? Home lending would fall at an order of magnitude lower rate.

[SpicyLemonZest]

I tried to look into this, and as far as I can tell the terms of LBOs are just so opaque there's no good way to tell. Maybe patio11 will do an article on it some day.