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Boardroom Blitz: What Happens When Private Equity Gets It Wrong?

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In a variety of ways, Hands is a creator and creature of the credit bubble. After trading bonds for Goldman Sachs in the City of London, he moved to Nomura, a Japanese wannabe. There he pioneered the use in the UK of securitisation, a new form of debt got up by allowing companies to sell future revenues. Enterprises no one had previously thought should be taking on mountains of debt suddenly could do so.


Thanks to Hands, Nomura was briefly the biggest pub landlord in Britain, as the Japanese investment bank bought thousands of local boozers, securitised their revenues, and sold them on for a profit. By the time he branched out into his own private-equity operation with Terra Firma in 2002, banks were clamouring to make cheap loans and investors to buy bonds, even with low interest rates. Private-equity firms the world over were happy to take their money, over and over again.

As the bubble reached its height, private equity was treating major companies in the same way that individuals were treating their houses – as cash machines that would pay out every time the mortgage got refinanced. And like homebuyers, private-equity firms were willing to pay crazy prices to get in on the racket. Many of the excesses of the credit boom were hidden from view, deep in arcane financial markets, where exotic derivatives with impossible acronyms traded between anonymous banks and hedge funds. But what was happening in private equity did attract attention, and opposition.

British trade unions led the charge, denouncing the sector's megadeals as an outrage: a financial scam multiplied by a tax dodge. They demonised Hands and his peers for the riches they reaped. Protestors from the GMB union turned up with a stuffed camel outside the Clapham church attended by Damon Buffini, whose firm Permira owned Birds Eye and the AA in the UK (the allusion was to eyes of needles). Private-equity owners of productive companies cut jobs to meet interest payments on all that debt, the unions said. The camel got into the newspapers, but the boom continued. As late as mid-2007, Chuck Prince, the chief executive of Citigroup, said that banks like his knew the party would end, but "as long as the music is playing, you've got to get up and dance. We're still dancing."

It was about the same time that Guy Hands bought his record label – and the music stopped.

So is the PE plan now just to try and keep servicing the debt hoping they don't break the covenants for when the party starts up again or just so that float the companies again on the stock exchange?

The court case for Hands starts next week against Citi which is the main part of the article.

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Another end result of Central Banks fiddling with the figures and fidling with the economy through interst rate policy - leading to massive levels of malinvestment and ponzi schemes based around cheap credit.

They are the prime destroyers of the economy.

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