Serious Irony

The Wall Street Journal is a terrific source of helpful and impartial information about the inner workings of new age finance. Still, one occasionally wonders whether the reporters who write the stories see the irony of lines like these, from Buyout Bonanza Compels Firms to Pile on Debt:

The last time leverage in buyout deals averaged 5.7 times cash flow was during the merger boom of the mid-to-late 1990s. In the years that followed, some debt-heavy companies, like barbecue-products maker Diamond Brands and animal-feed producer Purina Mills, defaulted on their debt when their bets went wrong....

As buyouts become more prevalent, shareholders are demanding higher prices for their shares before they will allow their companies to be taken private. To meet those demands, private-equity investors are borrowing more to finance their acquisitions, and banks and credit markets that are flush with cash are more than willing to lend money to them....

"It may be unrealistic to expect that all of these deals will perform to expectations in the long run....Unfortunately, we may discover that the LBO cycle has reached its point of excess only after a proposed deal fails," he adds.

Of course, the notion that firms feel "compelled" to pile on debt must surely take the cake, especially as signs abound that the U.S. economy is rolling over.

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