What’s the advantage of lending money that will get loaded onto a company that is already struggling and may go bankrupt?
In: Economics
The company *as it currently exists* might be struggling, but it might not be struggling once another company buys it out. It could be operated differently, and take advantage of being inside a larger company.
But the important thing is that banks (at this scale) only lend money when they have a security, being the ability to seize some kind of assets if the loan isn’t paid back. If a bank is lending money to fund the buyout of a company, the security is generally the company. And if a company has $10M of assets but $8M of debt, then yes, that company is in trouble, but if I’m the bank and the $8M of debt is owed to me, and they default on the loan and now I own the company, then now I own a $10M company and I owe $8M to myself, so whatever.
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