If you own shares in a company and decide they’re overvalued, is it unethical to sell at the inflated market value? (Assuming you’re not illegally trading on inside info of course.). Are you morally obligated to wait for a lower price? If you see market values in your neighborhood starting to edge down, is it incumbent upon you to sell at a big discount based on how far prices might fall in the next five years?
The high yield bond and loan investors who lent the money to allow the dividends and share buybacks were ultimately responsible to make the determination that the terms and pricing of the additional debt were adequate compensation for the increased risk of default.
Debt investors consider the value of the assets in the event of bankruptcy, because if that occurs they’re the new owners. There is nothing unethical about the process.
The creditors threatened litigation against Bain and its investment partners, accusing them of “professional negligence” and “unjust enrichment,”
I'm not saying the creditors don't bear responsibility for taking the risk they did. I'm saying they felt they got ripped off in the end and looking at the available facts I agree with them. It looks like Bain knew the company was on the road to bankruptcy when they borrowed the money and it's hard to imagine they were fully open and honest with the creditors about that.
Then there's the overall criticism of the leveraged buyout private equity business model as practiced by Bain, that appears to make companies weaker, leading to suffering on the part of the employees and shareholders, especially when the firms end up in bankruptcy. I'm not saying it's a legal question. But if you take a lot of money out of a company to enrich yourself to the detriment of the business and its employees and shareholders, that is a valid question of character. And Mitt Romney agrees with me...
http://www.nytimes.com/2007/06/04/us/politics/04bain.html?pagewanted=all
Bain and its co-investors extracted special payments of over $100 million from each company, enabling Bain to make a healthy profit even before re-selling the businesses — a practice known as “getting back your bait.” Lenders say Bain is one of the firms that has taken the most in such payments, which companies usually make by taking on additional debt.
Both Dade Behring and KB Toys soon suffered dips in their business. Unable to meet the burden of their debts, each filed for bankruptcy and laid off thousands of workers. Bain Capital spokesmen have said the company did nothing improper.
Mr. Romney, who remains an investor in Bain Capital, said he had not been involved in those decisions but acknowledged that such payments became part of the buyout business “very early on.”
“It is one thing that if I had a chance to go back I would be more sensitive to,” Mr. Romney said. “It is always a balance. Great care has got to be taken not to take a dividend or a distribution from a company that puts that company at risk.” He added that taking a big payment from a company that later failed “would make me sick, sick at heart.”