By Pam Martens and Russ Martens: September 19, 2017
The year 2017 is likely to be remembered for devastating hurricanes and storm surges, waves of retail bankruptcies amidst record-setting household debt and a stock market that carelessly sailed through these dangerous waters to record highs.
Toys ‘R’ Us was the latest in a growing string of retail bankruptcies to hit the mat last evening. Its bonds have been telegraphing trouble for some time, with one bond due next year careening from 97 cents on the dollar to 22 cents in a little more than two weeks. On September 6, Wolf Richter at WolfStreet.com provided the short narrative of how Toys ‘R’ Us found itself driving toward the ditch. Citing its leveraged buyout in 2005 by private equity firms Bain Capital, KKR & Co. and real estate firm Vornado Realty Trust, Richter wrote:
“So here’s what the three PE firms did to Toys R Us: they stripped out cash and loaded the company up with debt. And these are the results: At the end of its fiscal year 2004, the last full year before the buyout, Toys R Us had $2.2 billion in cash, cash equivalents, and short-term investments. By Q1 2017, this had collapsed to just $301 million. Over the same period, long-term debt has surged 126%, from $2.3 billion to $5.2 billion…It takes a lot of expertise and Wall Street connivance to pull this off.”
If the name, Bain Capital, sounds familiar to you, it’s because it’s the private equity firm that was co-founded by Mitt Romney in 1984 and overseen by him in the 80s and 90s. In his book, Turnaround, Romney writes that he owned 100 percent of the shares of Bain Capital. Romney went on to become the Republican Party’s nominee for President in 2012 and his varnished version of just what Bain Capital did for a living came under close scrutiny.
In 2012, Matt Taibbi of Rolling Stone penned an in-depth report on the dubious history of Bain Capital in the demise of companies. Taibbi wrote:
“And this is where we get to the hypocrisy at the heart of Mitt Romney. Everyone knows that he is fantastically rich, having scored great success, the legend goes, as a ‘turnaround specialist,’ a shrewd financial operator who revived moribund companies as a high-priced consultant for a storied Wall Street private equity firm. But what most voters don’t know is the way Mitt Romney actually made his fortune: by borrowing vast sums of money that other people were forced to pay back. This is the plain, stark reality that has somehow eluded America’s top political journalists for two consecutive presidential campaigns: Mitt Romney is one of the greatest and most irresponsible debt creators of all time. In the past few decades, in fact, Romney has piled more debt onto more unsuspecting companies, written more gigantic checks that other people have to cover, than perhaps all but a handful of people on planet Earth.”
For good measure, Taibbi adds that Romney’s history at Bain stands as “an emblem for the resiliency of the entire sociopathic Wall Street set he represents.”
Bain’s handiwork is also present in the bankruptcy filing of children’s clothing retailer, Gymboree, this past June. Bain Capital bought Gymboree in a leveraged buyout for $1.7 billion in 2010.
Romney lost the presidential election of 2012 and the Republicans got smarter over the next four years. They ran a winning candidate with the wholesome slogan of “Make America Great Again” while the candidate buried his financial picture behind a dark curtain, refusing to release his tax returns or disclose how much debt he owes and to whom he owes it. Subsequent investigations suggest that Donald Trump is beholden to dozens of Wall Street firms that hold his mega debt, thus enshrining Taibbi’s nod to the “resiliency of the entire sociopathic Wall Street set he represents.” While billing himself as the populist president, Trump has packed his administration with former Goldman Sachs bankers.
Toys ‘R’ Us issued an official statement on its bankruptcy, indicating it will continue operations. It wrote: “The company’s approximately 1,600 Toys ‘R’ Us and Babies ‘R’ Us stores around the world — the vast majority of which are profitable — are continuing to operate as usual.”
Wall Street banks appear to be engaged in the extend and pretend game with Toys ‘R’ Us. Bloomberg News reports that a syndicate of banks, led by JPMorgan Chase, will provide a $3 billion loan to allow the company to continue operations while it restructures its liabilities. Some banks in the syndicate are existing lenders, notes Bloomberg.