business news in context, analysis with attitude

Bloomberg has an interesting story about Bi-Lo, which, it says, is close to default, “putting in jeopardy about $1 billion of debt and 50,000 jobs at Winn-Dixie, Harveys, Fresco y Mas and its namesake stores.” However, the story points out, Lone Star Funds, “ the private-equity firm that invested about $150 million in a buyout of the Bi-Lo grocery chain in 2005,” already has come out ahead - largely because it “has paid itself at least $800 million since 2012, regulatory filings show, and collected still more in management fees.”

The story says that “Lone Star has followed the private-equity business model: Borrow money to buy a company and load it with debt. Use the debt to pay yourself and - with interest rates at rock bottom - issue more debt and pay yourself more.”

Bloomberg goes on: “While the borrowing may benefit buyout firms, it hobbles their companies. As of March, Bi-Lo’s debt was almost six times higher than its Ebtida, or earnings before taxes, interest, depreciation and amortization, according to Moody’s Investors Service. The average of a junk-rated company is about five times Ebitda, according to S&P Global. Better-performing grocery chains such as Kroger Co. have ratios closer to three times. Bi-Lo’s leverage level makes it tough to borrow more, and means bonds already issued are rated below investment grade.”
KC's View:
It seems fair to say that if Lone Star hadn’t stepped in, these companies may not have survived, and those people could have lost their jobs a lot sooner. That said, this kind of story actually makes me sick … because it is really about some rich folks figuring out how they can squeeze as much as blood as possible out of these businesses.

In the long run, what appears to have mattered more was them getting their fees and payments, not investing in the kind of fundamental changes that might’ve made these companies more resonant and relevant to their shoppers. This isn’t true of all PE companies, but for some this is all a game … while for the workers they play like puppets, it is life and death.