That's not a scam; it's no different from buying a house on a mortgage.
It's very different. A PE firm borrows money, buys a company, transfers the debt to the company, strips the assets and then lets it go bankrupt, leaving them with all the assets and no debts. Rinse and repeat.
You can’t “transfer debt”. Otherwise I’d borrow a ton of money and transfer the debt to Bill Gates. A PE firm borrows to buy a company, attempts to make it a better money making machine by making process improvements and having it borrow to fund expansion and then sells it. The people who lend to the company know what they’re doing. They’re making a bet that the PE firm was right and they’ve made a better money making machine. Sometimes they’re wrong and they lose this money. That’s capitalism. If you make a bad investment you can lose all your money.
If you followed toys r us or hostess (or many other such cases), the playbook is that the “money making machine” takes on new debt pays dividends to the PE, and then fails to pay that debt. This is apparently legal, the question is mostly how this loophole still exists despite being (ab)used by PE so many times.
It’s not a loophole. It’s people lending money to people who can’t pay it back. That’s capitalism. You make a mistake and lose money. It’s the exact same kind of mistake as lending to a wannabe restaurateur whose restaurant fails. You lent money to someone who couldn’t abide by the terms of the loan. As the lender that is your problem.
Sorry if I am being obtuse but I don't think that Toys R Us lent the PE firm money to buy Toys R Us. But somehow Toys R Us was responsible for paying back the debt that the PE firm took on to buy Toys R Us.
The PE firm should have more skin in the game, if they take out a loan to buy Toys R Us, they should be responsible if the company fails.
It's very different. A PE firm borrows money, buys a company, transfers the debt to the company, strips the assets and then lets it go bankrupt, leaving them with all the assets and no debts. Rinse and repeat.