Buyouts

Charles Morris’ thoughtful column on leveraged buyouts (Opinion, Feb. 26) did not mention that most LBOs involve privately held companies.

Each year an uncounted number of these companies pass from one owner to the next thanks to LBO financing. Generally, there are neither superfluous operations that can be sold to pay down debt nor a legion or unnecessary employees that can be dismissed to increase cash flow. Thus, even though the financing is secured by the company’s assets, lenders won’t provide funding unless the buyer can show that the resulting company can continue as an ongoing business. As a result, these private deals must be priced very conservatively.

The alternative to most private LBOs is for the owner (often nearing retirement age) to close the company, fire its employees, and sell its machinery, real estate and account list. But a leveraged buyout saves the company--as well as the jobs and the output of goods and services it provides. Properly structured, an LBO will enable the company to remain viable despite rising interest rates or slowdowns in the economy.

RUSSELL HINDIN

Los Angeles