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November 6, 2012
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Letter: The bane of Bain Capital

The bane of Bain Capital

From 1992 to 2002 when Mitt Romney was the CEO and sole shareholder of Bain Capital, a private equity company, he devised a business model for making no product, just lots of money. This is how it worked. You have a few million burning a hole in your pocket and you prey on a profitable company. The target company must be profitable for the scheme to work.

First, Bain makes a $5 million (or so) down payment; the victim holds the note on the rest of the loan that paid for its own buyout. Instead of reinvesting in the target company, Bain uses it to pay dividends to Bain’s shareholder.

Next, cut back on product/services and raise rates, not to reduce the debt, but to create an illusion of profit to justify another loan. The new influx of money is paid out in dividends to Bain’s shareholder.

Then, fire as many employees as is practical to cut costs, while maintaining production levels. Cut pensions and benefits. Again it seems there are enough profits to warrant another loan, because the company still appears to be viable and healthy. Again the loan proceeds go to pay Bain’s shareholder.

After Bain harvests everything it can, it walks away. Bain has been paid off in dividends but does not owe a penny. The victim company is the debtor and files bankruptcy. Workers lose their jobs, pensions and benefits. The creditors and taxpayers clean up the wreckage.

Some of the plundered companies were: Stage Stores (1988), Damon Corp. (1990), Ampad (1992), GS Technologies, renamed GS Industries (1993), Dade Behring (1994), Details, renamed DDi (1997), KB Toys (2000). All of these companies were forced to declare bankruptcy between the years 2000 and 2004. They were all savaged by Bain Capital for a total of $876 million.

Patricia Forster

Azalea


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The News-Review Updated Nov 19, 2012 03:12PM Published Nov 13, 2012 02:05PM Copyright 2012 The News-Review. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.