Tuesday, July 05, 2005

Wanna see a bank take an equity risk

for the cost of debt?

Buyout shops recap N.E.W.
by Kelly Holman
The Deal. Updated 10:42 AM EST, Jul-1-2005

TH Lee Putnam Ventures and Freeman Spogli & Co. are expected to announce today they have completed a $370 million financing that recapitalizes N.E.W. Customer Service Cos. and allows the two private equity firms to extract a dividend.....

Smith declined to comment on the size of the dividend payout to TH Lee, the company's largest shareholder, and to Freeman Spogli, except to say that it exceeded the firms' investment in N.E.W. in August 2004, when they recapitalized the business. That deal valued the business at about $370 million (continued)...

-essentially, the bank or debt investors are giving the company capital, probably at decent rates, in order to allow the owners to extract money from the company (not invest it in growth). Probably more money then they invested in the first place. So the shareholders get to own the business, benefit from profit and the lender is taking all of the risk as the owners have gotten their initial capital investment out. I wonder if there are any guarantees on the loan? Great deal for the lender........I wonder who bought this story.

What the lender is doing allows the owners to profit from the "value" of the company, rather than profits. Ask your bank if they will cut you a deal like this.


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