quote:
Most private equity firms will come in buy up the business and assets. Then start selling the real estate to float that as expanded profits that go straight back into the private equity firms. Then they then start merging and consolidating services and then start loosing customers as the business starts to suffer and private equity firms build up debt transferring proceeds of the loan back into the private equity firm’s hands. Then they have a shell of a former company that they bought was flush with cash at the start that is now broke and teetering on bankruptcy.

This has barely anything at all to do with the OP's topic/question.

Here's the REALLY SIMPLE version for the OP:

Companies borrow money. Some of it is in the form of "bank loans" and high yield (i.e. junk) bonds. In recent years, bank loans have taken market share from junk bonds. Bank loans are senior secured instruments, albeit to "below investment grade borrowers". The market is massive.

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Posted by IbalLSUfaninVA

Alexandria

Member since Jul 2008

3537 posts

Posted on 3/23/25 at 8:29 pm to GumboPot

Back floating rate debt can be a concern in various economic conditions, particularly if interest rates rise significantly. Here are some points to consider regarding its potential impact on the financial system:

1. Interest Rate Sensitivity: Floating rate debt is tied to market interest rates. If rates rise, borrowers may face higher repayment costs, which can strain their finances, particularly for those with tight cash flows.

2. Borrower Profile: The risk associated with floating rate debt often depends on the creditworthiness of borrowers. If many borrowers are highly leveraged or have poor credit, the risk of default increases during economic downturns.

3. Market Conditions: A significant rise in interest rates can lead to tighter financial conditions, impacting both consumers and businesses. This could lead to increased defaults and financial instability if not managed properly.

4. Economic Growth: If the economy is strong and growing, the impacts of floating rate debt may be manageable. However, if economic conditions worsen, the risks associated with this type of debt could be exacerbated.

5. Financial Institutions: Banks and financial institutions that hold significant amounts of floating rate debt may face challenges if borrowers begin to default. This could potentially lead to broader financial instability.

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Posted by baldona

Florida

Member since Feb 2016

23248 posts

Posted on 3/23/25 at 8:56 pm to GumboPot

2 things happened in 2008 though. One was that interest rates went up, that was a fairly minor issue in and of itself. The biggest issue was the amount and type of mortgages that were lended and who was getting them, allowing the market to skyrocket.

I was fairly young but I just remember the home prices going up to such a laughable amount locally to me that no one logically should have been buying.

I don’t remember the exact details, but my old neighbors house across the street made the papers in 2009 or so because it sold 3 times in one year. It was something like $350,000 the first time, then $475,000 and finally again for like $525,000 and then the market collapsed. It was short sold later for something like $275,000.

There’s plenty of arguments for the economy not being fantastic and this or that could happen like interest rates raising again, but there’s no indication of a major change like 2008. I’m talking like 7% to 17% interest rate changes.

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