How a Private Equity firm deliberately gutted Remington - Sensationalist Headlines

https://www.nytimes.com/interactive/2019/05/01/magazine/remington-guns-jobs-huntsville.html?action=click&module=Well&pgtype=Homepage&section=The%20New%20York%20Times%20Magazine&utm_source=fark&utm_medium=website&utm_content=link&ICID=ref_fark I recommend reading the article, some good investigative journalism. Shows some detail about how local governments try to court businesses, "financial engineering" at work, how how anti-gun rhetoric sparks gun profits, de-facto segregation in the south, using temp workers to skirt contracted wages and prevent unionization, etc.. Some highlights: ...The business was, according to him, “in shambles.” It seemed that the companies Cerberus had moved to Alabama had been “bought and forgot.” ... Executives were fired at a fast clip. Line employees came and went. Parts piled up on the factory floor. Most worrying, Cerberus, which was trying to integrate disparate brands — the father-son pastoralism of Remington with the urban-militia aesthetic of AAC, for instance — seemed to him miserly when it came to marketing. “The decisions were all about: Where can I save another dime?” he told me. ... by far the most important piece of private-equity firms' business — 48 percent...— is investing capital for American pension funds. Beginning in the 1990s, pension managers and unions could see that when the baby-boom generation retired, there would be shortfalls between what the funds were obligated to pay out and the money they had — the so-called pension gap. An investment strategy that could return 15 to 20 percent a year and close that gap was an irresistible solution. The pension fund for the Boston-area public water utility invests in Cerberus. The California State Teachers’ Retirement System, CalSTRS, is a Cerberus client, as is a pension fund for the Presbyterian Church as well as many university endowments, sovereign wealth funds and philanthropic foundations. Across the table sat Battle, the head of the Chamber of Commerce and the state’s economic-development director. They flipped their cards one by one. The governor’s office would give Remington a significant abatement of their income tax for 10 years. The Tennessee Valley Authority would provide discounted electricity. Alabama Industrial Development Training, a state agency, would train Remington’s workers free, as it had done for 800,000 others at big-name companies in Alabama, like Boeing, Raytheon and Mercedes. Then Battle flipped the fourth ace: He agreed to purchase and renovate the former Chrysler factory in Huntsville for $12.5 million and give it to Remington rent-free. A company purchased by private equity can expect to be realigned aggressively, in a five- or 10-year window, to become more “efficient,” which often entails firing, automation and offshoring. For a pension fund, then, and especially the pension fund of a union, investing in private equity can be a devil’s bargain: helping retiring workers by using tools that may harm younger ones. Composed entirely of “right to work” states, the South allowed employees in unionized shops to opt out of paying dues, effectively guaranteeing that any union encountered by Remington would be worse-funded, and therefore less powerful, than a counterpart in the North. At Remington’s factory in Ilion, N.Y., employees had health care and long-term contracts thanks to the United Mine Workers of America. They were difficult to fire, and they stuck together. In some cases, multiple generations of men in the same family had worked on the line. “That union,” a former Remington executive told me disdainfully, “had them by the balls.” In order to buy Remington, Cerberus, as most private-equity firms would, created a new entity, a holding company. Instead of Cerberus buying a gun company, Cerberus put money into the holding company, and the holding company bought Remington. The entities were related but — and this was crucial — each could borrow money independently. In 2010, Cerberus had the holding company borrow $225 million from an undisclosed group of lenders, most likely hedge funds. Because this loan was risky — the lenders would be paid only if Remington made a lot of money or was sold — the holding company offered a generous interest rate of around 11 percent, much higher than a typical corporate loan. When the interest payments were due, the holding company paid them not in cash but with paid-in-kind notes, that is, with more debt. These are known as PIK notes. In April 2012, Cerberus did something fateful, which probably seemed smart at the time. It had Remington borrow hundreds of millions of dollars and use it to buy the holding company’s debt, effectively transferring responsibility for the principal and the interest payments onto Remington. America’s oldest gun company now owed the money that Cerberus had used to pay itself back for having bought the company in the first place. There were plenty of sensible reasons to do this. Gun sales were high, and the debt that Remington took out was cheaper to service than the paid-in-kind debt. But there was a catch. Because the operating company borrowed the money with a normal loan — and not with PIK notes — interest payments were required in cash. Suddenly Remington was carrying hundreds of millions of dollars in debt that, if it could not be paid, would cause the business to go bankrupt.

Cannibalisation. LSC having a normal one.

“That union,” a former Remington executive told me disdainfully, “had them by the balls.” this sort of mentality should be criminal considering how tightly restricted unions are in this country.

Private-equity buyouts are associated in the public imagination with layoffs, but the research on that topic isn’t conclusive. Private-equity-owned firms don’t necessarily occasion more layoffs than publicly traded ones, but some studies suggest that private-equity firms may be responsible for increased polarization in the job market, that is, for eliminating midlevel roles and thereby contributing to the shrinking of the middle class. A company purchased by private equity can expect to be realigned aggressively, in a five- or 10-year window, to become more “efficient,” which often entails firing, automation and offshoring. For a pension fund, then, and especially the pension fund of a union, investing in private equity can be a devil’s bargain: helping retiring workers by using tools that may harm younger ones. So pension funds seek more money to cover expenses, leading to a situation of less people being employed. I've always been annoyed that our generation will uniquely be left to our own devices and fucked over at every turn. Our forefathers, our parents, they had a government that didn't fuck them at every turn, just most. Our government, run primarily by our parents and forefathers, exclusively seeks to fuck us. Eat em.

I don't see how this is deliberately gutting remington. It's just corporations doing corporation shit.

In April 2012, Cerberus did something fateful, which probably seemed smart at the time. It had Remington borrow hundreds of millions of dollars and use it to buy the holding company’s debt, effectively transferring responsibility for the principal and the interest payments onto Remington. America’s oldest gun company now owed the money that Cerberus had used to pay itself back for having bought the company in the first place. Isn't this what killed Toys r us and is currently killing Sear's? It just seems so strange to me that companies can straight up buy smaller companies suck all the money out of them and then ride them straight into bankruptcy court and come out richer than they started.

So this is a total aside, but can we take a moment to appreciate that article image? I at least think it's pretty neat, and a nice way to succinctly summarize the article's thesis. I always like to take a moment to appreciate creative symbolism like that for investigative articles like this.

Would it be a stretch to think that this is happening to just about every company that is bought by private-equity firms?