Private Equity Asset-Stripping Strategy Meets Charter Schools to Produce Even Better Looting
from Naked Capitalism:
Private Equity Asset-Stripping Strategy Meets Charter Schools to Produce Even Better Looting
Posted on September 22, 2015 by Yves Smith
Eileen Appelbaum, co-author of the important book
Private Equity at Work, flagged an important article in Philly.com on how a secretive consulting firm that was previously investigated for corruption and a local law firm are engaged in complex, high cost bond deals to implement an asset stripping strategy that Appelbaum and her co-author Rosemary Batt have called out as a private equity enrichment scheme that impairs operating businesses. Its bad enough to see this sort of thing take place in the dog-eat-dog world of Corporate America. Its even worse to see it take place in charter schools, where the losers are students, by virtue of unjustifiably large portions of charter fees go to unproductive rental payments and financing fees, as opposed to education, and to taxpayers, who over time face inflated costs to fund profiteering masquerading as education.
If you live in the Philadelphia area, I hope youll read articles Charter schools building boom: Charters borrow nearly $500 million on taxpayers dime and raise holy hell about the String Theory charter schools, whose expansion plans need to be stopped in their tracks, as well as the roles of its highly paid fixers, the consulting firm Santilli & Thomson and the law firm Sand & Saidel.
The nub of the looting strategy is the acquisition and leaseback of lavish buildings to house charter schools. Because charters are correctly perceived to be risky tenants, bond financings for these purchases are at junk bond rates, meaning high financing costs are heaped on top of what would already be unjustifiably high rental charges, by virtue of putting schools in educationally unproductive glamorous digs. And of course, in an environment where its business as usual to lard up bond deals that could be done on a plain-vanilla basis with far more complicated deals that lower interest rates a smidge in return for allowing consultants to charge hefty fees and the financiers to dump risks worth more than the cost savings on the hapless borrower through derivatives, the financial rent extraction can occur at an even greater scale on a high-cost financing. .................(more)
http://www.nakedcapitalism.com/2015/09/private-equity-asset-stripping-strategy-meets-charter-schools-to-produce-even-better-looting.html