PE HUB Wire Highlights, 7.9.18

Photo of Luisa Beltran, PE HUB Senior Editor, courtesy of Buyouts Insider.

Congress questions PE handling of Toys’ failure; Five dangers lurking in the balance sheet of your next deal; EQT buys Saxo Payments Banking Circle

It’s Monday, Hubsters. How is everyone doing?

The Toys “R” Us saga is not going away. Lawmakers last week sent a letter to the PE backers of Toys and questioned their role in the retailer’s failure, the Wall Street Journal reported. The July 5 letter asked the firms whether they deliberately pushed Toys into bankruptcy and encouraged them to compensate the roughly 33,000 workers who lost their jobs, the story said. The letter, signed by 18 Democratic House members and Sen. Bernie Sanders, an independent from Vermont, was sent to KKRBain Capital and Vornado Realty Trust.

Before the sale to the PE firms, Toys’ capital structure was 30 percent debt and 70 percent equity, lawmakers noted in the letter. That switched to 78 percent debt and 22 percent equity with the sale of Toys to PE. KKR, Bain and Vornado acquired Toys in 2005 for $6.6 billion. “Was this a deliberate policy by your firms to load the company with debt? If so, what is your justification?” the letter said.

Toys, the congressmen noted, brought in over $150 million in operating profit but struggled to pay $400 million every year to service its estimated $5 billion in long-term debt to Bain and KKR.

“We are concerned that your investment firms have deliberately chosen this path for the company, its workers and its communities,” the letter said. “It is still possible, of course, to assure some measure of recognition for workers and their services, through severance pay and community-impact funds for example.”

The lawmakers want the PE firms to answer their questions no later than July 15See the letter here.

This morning, we have a column from Helene Banks, of Cahill Gordon & Reindel, who writes about the dangers of rushing to close a deal and the five dangers lurking in the balance sheet.

FundsAbingworth, the investment group focused on life sciences, said July 9 that it closed its latest fund at $315 million. Check out our brief here.

Deals: EQT is buying Saxo Payments Banking Circle, which provides infrastructure for online cross-border payments. Read our brief here.

Cerberus is buying 57 percent of Officine CST SpA. Check out our brief here.


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