Linens 'N Things Officially Bankrupt

Linens 'n Things filed for Chapter 11 bankruptcy protection today, becoming the first of what will probably be a series of high profile bankruptcies of LBO's completed in the past few years. As I mentioned in my prior story on Linens 'n Things, the company has been on a money-losing tear for the past two years, pretty much since the day Leon Black's Apollo purchased the retailer for $1.3 billion in February 2006. Apparently, Apollo grew weary of supporting the retailer and chose the bankruptcy route, thus screwing the debt investors who were foolish enough to believe the company's cash flow could support a ridiculous debt burden. Linens 'n Things received $700 million in debtor-in-possession financing from GE Capital Corp, allowing the company to continue operations but further screwing the debt investors, as debtor-in-possession financing becomes senior to existing debt holders. If you still think it's a good idea to invest in Apollo's impending IPO after reading this story, please call me. I have some great condos in Miami to go that are perfect for an investor just like you!

No Money, Just Linens 'N Things...

Linens 'N Things is expected to file for bankruptcy on Tuesday. Separately, and yet entirely related, Apollo is going ahead with its IPO plans, despite the turbulent market. How are these two stories related? Because Apollo, the highly regarded private equity firm run by Leon Black, took LNT private in February of 2006 in a $1.3 billion buyout. Maybe Mr. Black thought he could get his firm's IPO out the door before the LNT bankruptcy filing in order to cash out before returns in his funds suffer? I'm just speculating, of course.

Who on earth could've seen the surprising news of LNT's bankruptcy coming? Did the news of LNT's $154 million loss in 2006 not ring a bell for investors and cause them to view other similarly debt laden deals with caution? No. The private equity boom continued for at least another year. But perhaps it is finally starting to dawn on people that not every company in America needed to be loaded up with debt and taken private, unlike the definitive claims of all of those nauseating editorials I had to read in the Wall Street Journal during the height of the boom about how private equity "creates efficiency." Maybe, just maybe, the whole boom was based on financial engineers taking advantage of the tax benefits of issuing debt and temporary insanity in the debt markets. Perhaps, private equity players are starting to think "hmmm, maybe piling a ton of debt on a bunch of highly cyclical businesses (hello Freescale and Chrysler) five years into an economic boom was perhaps idiotic." Yeah, if I were Mr. Black, I'd be planning my IPO too...