Failed Company Creditors Cry Foul Over Banks' LBO Profits

hammer nail leverage

Should banks that funded leveraged buyouts of soon-to-fail companies make money off the deals?

Not if you ask the collapsed companies’ creditors.

New York Post: Creditors of Lyondell Chemical, which filed for bankruptcy in January, have already taken legal action. Lenders to Tribune and Station Casinos, which were purchased in multi-billion dollar leveraged buyouts and then crashed, are considering lawsuits. Citigroup, Deutsche Bank and JPMorgan are among possible targets.

The argument is the companies couldn’t handle the increased debt on deals made before the credit crisis. It’s like the corporate version of “predatory lending” complaints, with the banks foisting credit upon easily susceptible, uncredit-worthy borrowing. We don’t think it will fly.

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