Maybe now Coldwell Banker Greenwich will get my point

Just about a year ago I was fired from the Greenwich Post after the manager of their biggest advertiser, Coldwell Banker Greenwich, threatened to pull their advertising if I wasn’t yanked. My publisher took about a nano-second to weigh whether he was in the journalism or advertising business and that was the end of my print run.

Which is water over the dam. This blog is far more successful, and far more fun, than the column, so no hard feelings. But I was fired for discussing the overwhelming debt loaded onto Coldwell Banker and its sisters, Century 21 and Sotheby’s, by the private equity firm of Appollo management. Apollo bought the parent company of the brokerage firms, Realogy, and smothered it in debt to pay its own investors. The point of my column was not to attack Coldwell Banker but rather to express dismay at how the new Wall Street was ruining good companies through its greed.

Today, a year later, the Wall Street Journal says the same thing. And the chickens are coming home to roost, to quote Obama’s preacher.

Wall Street might remember the private-equity boom for the billions in fees it collected along the way.

The rest of the country might remember it for a different kind of cleanup: job losses created, in part, by unsustainable debt loads hoisted on thousands of companies across the economy.

So far, the private-equity industry hasn’t come to terms with this inevitable bloodletting. That is largely because it has been spending the last two decades trying to reform its image from the 1980s, when buyout artists were branded unrepentant “flippers and strippers.”

The makeover can’t hide the basic facts: Otherwise-decent companies are being subsumed by debts that simply can’t be paid in this brutal recession. There is a certain irony that the Web site of the industry’s trade group, the Private Equity Council, highlights three investments — MGM Studios, Univision and Hilton Hotels — that are already struggling mightily.

There are more than reputations at stake. There are big portions of the economy, too. Private-equity research firm Pitchbook Data estimates 7.8 million people are employed by companies owned by private-equity firms.

“Things are bad, and because of the capital structure, it’s even more challenging,” says Pitchbook’s John Gabbert. Private-equity owners are “going to do everything they can to make these companies lean to service that debt.”

Buyout bosses have for years said they had properly “stress-tested” their numbers, leaving room for a downturn. But they couldn’t anticipate a near depression.

Just look at Moody’s latest Bottom Rung list, which features the companies it views as most likely to default on debts. The buyout gang’s all there: Univision, Harrah’s Entertainment, Realogy Corp. and Jacuzzi Brands Corp. among others.

Gee, I sure hope Coldwell Banker doesn’t threaten to pull its advertising from the Wall Street Journal!

7 Comments

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7 responses to “Maybe now Coldwell Banker Greenwich will get my point

  1. anonymous

    PE was called LBO and junk bonds…and similarly vilified back in ’80s and early ’90s

    LBO kings were 40-something centimillionaires back in ’80s…now, elder multi-billionaires…but same game plan in profiting from buying inefficient cos., leveraging, strip and flip, etc

    Recall Leon was an M&A banker under Milken in ’80s, before founding Apollo upon Drexel’s demise

    Can find “greed” (or inefficiency) in any business or non-profit…so what?

    Ironically, many PE investors who handsomely profit from lucrative net returns are university endowments, pension funds of worker bees, etc etc….money doesn’t sit under a mattress; many workers’ pensions and kids’ college scholarships depend upon PE and HF returns….

    • christopherfountain

      I’ve got nothing against self-interest, Anonymous, or “greed” as it’s called – it’s powered the world since Eve offered that apple. And junk bonds were, on the whole, a pretty good way to shake up staid old firms. What I object to is loading up companies with so much debt that they can’t possibly pay it off. That, in my opinion, is what Apollo did to Realogy, and it looks as though they’ll kill off that company while enriching themselves. That’s not so admirable.

  2. Lorin

    sweet…and so almost presecient of you…credit due.

  3. Retired IB'er

    Bar none, the most reprehensible behavior is when LBO’s threaten (or raid) pension funds, affecting retirees. Should be a special place in hell for guy’s that do this. And while we are at it, let’s not forget CEO’s that stuff their faces at the pig trough while underfunding pensions.

    • christopherfountain

      Maybe we could require them (and the AIG bonus babies) to invest their savings with Bernie Madoff. Or, if that’s deemed too harsh, Walt Noel.

  4. Kidding Really??

    I was fired from an investment bank for saying something (on a fax) that got into wrong hands and at the wrong time. It was about the risks of a subprime lender who’s CEO was selling $50m of stock, the private plane for the company which did 90% of the biz in one state (but the CEO took trips to the Islands with is ex stripper 2nd wife, serious). This was 1996 and the stock went from $50 to $0 in a year. It hurt getting fired but it MADE my career. That firm I was fired from ended up having its own little subprime problem too. Keep up the good work Chris. Those with ethics, morals and are willing to tell the truth usually end up OK.

  5. Not PE in particular

    I can understand feeling vindictive (I would be too!)

    But to specifically point to LBOs? True they are equal sinners. But the point is that if there wasn’t so much cheap debt available people wouldn’t have overleveraged companies so much. PE just jumped on the bandwagon.

    LBOs is, after all, a small part in the big problem.