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If you look closely, much of the "debt" is actually between subsidiaries of the same controlling PE owner - it's possible for the left hand to loan money to the right hand, claim back huge interest payments (Maplin were paying 15%! https://leftfootforward.org/2018/03/revealed-how-private-equ... ), thereby taking profit out of the subsidiary without it appearing as profit to the taxman. The internal creditor at the high rate will have got their principal back very quickly. It's the external creditors (suppliers etc) who get stiffed.

Remember that every supplier and every employee of a business is also a creditor.






The author doesn't know how bankruptcy works. You can say the debt is "secured" all day long, but if it is held by the owners then the bankruptcy judge will immediately kick it to the back of the line by equitable subordination.

Interesting. What about the obvious follow-up question: Why do the external creditors that lend to a pizza company via accounts receivable deserve their money back? Didn't they see the scammy nature of the operation?

It’s not like suppliers of a chain this large aren’t big savvy corporations too.


<shrug> They're Pizza Express. There's one on every high street. Who would expect them to fail to pay invoices? There's a cost to credit-checking your counterparties, too. And at the end of the day, none of them are invulnerable. If you're a food wholesaler or a POS systems company, do you refuse to do business with Pizza Express? Do you have time to go through their accounts? Is £1bn even unusual? Have they been like running successfully like this for a while?

I think this particular case there might be late payment but the business is going to remain in operation and they'll eventually get paid. Thomas Cook on the other hand incurred a lot of externalised costs.

I'm really not a fan of post-hoc "ah, people deserve to lose their money because they should have known (nonobvious XYZ)". There's even a surprising sentence in the BBC article:

> its auditors were happy to conclude the chain is a viable going concern when it signed off its accounts in April this year despite the company's debts being worth more than its assets

If the auditors (chartered regulated specialists!) think it's fine, who would say it wasn't?


Also

> despite the company's debts being worth more than its assets

Doesn't mean much if you're just comparing Book Value...


In this case they wouldn't care because the external bank debt is senior to the debt in question. The author doesn't really know anything about corporate finance as I would expect from a publication called "Left Foot Forward".



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