Private equity is destroying US infrastructure to make a quick buck. It's happening in almost every sector of the economy you can imagine. I'm not exaggerating when I say that PE firms are buying up nursing homes, transfering ownership of the land and building off into a separate entity, and have that entity charge the nursing home rent which keeps going up and up. This forces management of the nursing home to find ways to cut expenses until there's nothing left to cut except stuff directly related to resident care, safety, etc. Families see the writing on the wall and move their relatives out which accelerates the demise of the nursing home and it has to shut down (or is shut down, by the county/state.) Then the PE firm bulldozes the building and sells the property (which is what they really wanted.)
The US suffered a massive toxic fire in Ohio that destroyed a big chunk of the town and left a huge area heavily poisoned because a private equity firm bought the railroad and was squeezing it for every penny, and despite plenty of warnings by union officials and experts, the FRA did nothing and then...boom. Wheel bearing seized, train derailed, town polluted by hundreds of thousands of pounds of incredibly toxic chemicals like vinyl chloride.
- insanely strict rules about when engineers can request time off even for family medical emergencies, and sick days (so you have train engineers and other staff working while sick as dogs. Totally safe! Really stressed out employees, too - and stress means mistakes.) RR unions tried to strike twice. First congress and then and Biden bitch-slapped them back to work with a "compromise" that was still oppressive as hell because the economic disruption from the trains not running was more important. All because the railroads want to cut the number of employees down as low as possible so there aren't available engineers to replace sick ones, and they don't want delays while replacement engineers head out to trains that had to be left somewhere because the engineer was sick.
- dramatically reducing the time rolling stock maintenance crews have to inspect a car for problems - from three minutes to a minute and a half. Not only does this save labor, it means those maintenance crews don't find as much stuff wrong which takes a car out of service and costs money for the repair...woo, saving more money!
- reducing the number of employees per train; I believe it's currently two, and they're trying to push the FRA into allowing them to run one employee per train.
- increasing train lengths to reduce labor costs by moving more cars per people they have to pay. This increases the chances of derailments, and also causes other problems, like slower brake response time (the longer the train, the longer it takes for a pressure reduction in the brake line to make it to the end of the train, though I believe some end-of-train devices can be set up to remotely release brake pressure.)
- reducing track crews and time allocated to track maintenance so the tracks are more available and maintenance costs are lowered.
Keep in mind locomotive engineers are paid a median wage of $35/hour with a 10/90th percentile spread of $28/$44. These aren't enormous sums of money they're saving by going to one person on the train, particularly since it will be a lower-paid employee who is removed.
The crash was caused by overheating bearings which caused a wheelset to seize and derail the train.
Hilariously, the EPA, the railway, and "independent scientists" all declared the area safe but EPA employees visiting the sites became sick in ways similar to how residents were being affected.
The railroad companies responded to public and congressional furor by saying they'd self-regulate (!) better, and join a program similar to the FAA's close-call incident reporting system. Only one railroad has joined that system, and all but one raiload saw an increase in derailments in the following year.
The PE firms know their maintenance and staffing cuts are causing increasing problems and will destroy the railroad companies. They don't care. They're milking the railroad companies for every dime they can squeeze, leaving them in tatters from all the deferred maintenance and repairs. These companies are responsible for moving massive amounts of cargo around the country, and when they fall apart, it will be a national crisis, and the federal government will have to step in and bail the companies out because they're 'Too Big To Fail.' And the PE firms that own trucking companies will see record profits...
I couldn't breathe reading this. I had no idea it was THIS bad, these private equity firms need to be reined the hell in if not eliminated and legislated against. Make them do something useful to society or tell them to get bent
I am sure you heard of red lobster going bankrupt because of endless shrimp.
Well, that wasnt actually the case but once again private equity.
They forced red lobster to sell off their land/buildings to a PE controlled entity. Which rented it back to them. Also forced them to go to a specific, PE controlled, fish seller.
In fact, they got forced into starting the endless shrimp stuff because that seller had too much shrimp.
And for the privilege to be managed by them, the bought companies get forced to take on the debt that PE took on to buy them in the first place, along with paying an outrageous amount of money every month.
And lets not even get into what they do to elderly homes..
Darden group sold Red Lobster to GGC because it was massively underperforming in it's portfolio due to mismanagement through the 90s. GGC wasn't able to make much headway with it, and so it sold 25% to a vendor on the supply chain as part of debt restructuring and forgiveness, that allowed them to get some unit economics back into reality and the owner of the supply chain company took the rest of the position to continue the work of re-building the supply chain. Should the PE firm have involved the vendors in that way, maybe not, however it seems it was a decent enough strategy in terms of thoughtfulness.
Red Lobster had a death rattle long before PE got involved, PE is just a convenient story.
McDonald's, a non-failing firm, not owned by PE, was once described by a former CFO thusly: "We are not technically in the food business. We are in the real estate business." They realised that owning the land upon which their restaurants, allowed them to succeed.
Red Lobster's PE firm, on the other hand, did the exact opposite: sold the most valuable asset out from under their restaraunts, to another PE firm, which then squeezed the restaraunts on rent and ruined their store economics (along with the aforementioned supplier further ruining their unit economics) until they went out of business.
They're in Chapter 11, they're not out of business yet.
Why do you think that is what happened? It doesn't seem to be in line with what GGC told their LPs, so I'm curious where you get your interpretation of the events from? Do you have any links or reading you could provide me with?
The reason I think that is what happened is because that is what happened. Here are some links, as requested:
How a bad real estate deal sunk Red Lobster [0]
When a private-equity firm bought the iconic seafood chain in 2014, it sold the real estate under the restaurants for $1.5 billion. Then the restaurants struggled to pay the rents [1]
It Was A Bad Real Estate Deal, Not A Bad Meal Deal That Killed Red Lobster [2]
Ultimate Endless Real Estate Costs at Red Lobster [3]
Golden Gate crippled Red Lobster by selling off one of its most valuable assets, the real estate it owned [4]
To help fund the deal, Red Lobster spun off its real estate assets in a transaction known as a sale leaseback agreement. Red Lobster had long owned its own real estate but would now be paying rent to lease its restaurants. Sale leasebacks are very common in the restaurant industry, but the arrangement wound up hurting Red Lobster because it became stuck with leases it no longer could afford to pay. [5]
But again, it wasn’t because of the shrimp. Following the sale of Red Lobster to Golden Gate, the chain’s real estate assets were also sold off, which meant that the restaurants now had to pay rent on these locations to their parent company. As such, the company was stuck in leases for underperforming restaurants that it couldn’t afford [6]
The vendor wouldn't have been able to afford the price of the business with the land in the deal, it would have massively complicated chapter 11 if they needed to enter it (they did), given were the company was, reducing tax burden was important (sale was done at near breakeven). Sale+Rent back is a very traditional move in clearing up a business that has very little value and is leaning heavily on a real estate portfolio (not it's core business). You can read all the court filings and disclosures over the years, it paints a different story.
I understand the media told a story, but the story isn't the whole story, in fact it's just that: a story.
The 6 reliable sources provided, which I trust you read in the 30 minutes between their posting and your reply, speak for themselves.
If you can convince all 6 reliable sources I linked, to correct their story, such that it reflects your own personal narrative of what happened, I will believe you.
Alternatively, you could provide 6+ equally-reliable sources which explicitly point out that the 6 reliable sources I cited are wrong (rather than just reframing the issue, or attempting to predict what would have happened had reality been different than what it was).
While I respect you as a person, and as a valuable contributor to this forum, your personal narrative simply isn't as reliable as the 6 reliable sources I provided.
Darden had a very interesting pitch to GGC, going so far as to secure covenants from franchisees holders in advance to sale+leaseback - GGC in spite of S+LB, obligations, the in fact bought millions more in real estate to try and shore up the stability in locations.
It seems we're in violent agreement: The sources you provided don't actually dispute the ones I did: indeed, they confirm that the real estate was sold out from under the restaurants. To further cement this point, your last link flat out says what we're all already saying: Private Equity can't/didn't save Red Lobster.
This action further distressed individual restaurants, rather than helping them out.
Instead, the sources you provided instead simply say that it was advantageous for Private Equity and the Private Equity deal, which is the point here: it was good for PE, bad for the individual restaurants.
Which makes sense, it's not a complicated concept: how does jacking up rent on an individual restaurants help it? It doesn't, as the sources I provided pointed out. If you were paying X today, and now you have to pay >X, that doesn't help you.
Why was it worse for the restaurants than the alternative?
Why was the rent increased, by how much, and by who?? What was the difference between the payments and how much did it diff from market over time or at whatever time you're talking about.
I'm an LP in GGC so I have lots of thoughts, happy to hear yours in detail!
By how much? By enough to hurt the restaraunts. I'd be happy to hear from you the specifics of how much it was increased, per-restaurant, if that's what you're referring to.
Was it worse for the individual restaraunts than not jacking up the rent? Yes, paying more is worse than paying less.
Was it worse than not being bought out by PE? Probably, but that's the sort of prophesizing about what would have happened had reality been different, in which I'm not interested in participating. What we do know is that a lot of value was extracted from Red Lobster into the pockets of PE, leaving the company a withered husk of its former self, a common PE playbook.
It's not prophesying given we have additional facts we could include to play out the alternative (socioeconomics)- if you wanted to engage from a place of intellectual honesty, that is.
"Playing out an alternative future" is "prophesizing" with more words, and prophets always claim to have some basis to predict the future, but nobody can. That's why I'm not interested in prophesizing about what might have happened had reality been different.
You mentioned rent costs, though: I'm happy to hear the rent costs before vs. after private equity sold the land out from under the restaraunts – it sounded like you were saying you're in a position to access those numbers? Given your excellent posting history, I trust that you want to engage from a place of intellectual honesty in that regard.
As it stands now, all we know is that, post private equity, they were jacked up so much that the stores struggled to pay. So how much was it exactly?
That's a fair bit of revisionist history trying to make PE look like it's not the bad guy.
Red Lobster was flourishing in the 1990s; it was one of the most popular sit-down chains back then. There were lines around the block at most locations.
In 2013, Darden Restaurants decided to spin-off Red Lobster and Olive Garden by selling them to a PE firm which coveted the ability to exploit these profitable chains. (Average EPS was approximately $0.77/share, and Red Lobster remained the countries' most popular seafood chain until COVID.)
The sale to the PE firm GGC included a sale-leaseback of all of Red Lobster's real estate. The purpose of this was to fund the acquisition, since PE never puts its own money down; it funds acquisitions with the assets of the acquired company. Red Lobster's operating expenses jumped more than 50% overnight, as it now had to pay rent on locations it used to own.
Within 2 years, this PE-driven cash grab had Red Lobster on the verge of bankruptcy. Selling Red Lobster to its biggest supplier didn't fix things because the problem was that PE had the bright idea to ruin the company through the sale-leaseback arrangement.
PE was not just a convenient story, they are the cause for Red Lobster's demise.
A lot of the time, private equity (like MBAs etc.) is a convenient bogeyman for why crappy underperforming companies are crappy and underperforming. But private equity often gets involved because they are crappy and underperforming (or are just in a line of business that doesn't have good prospects any longer).
A small fraction of the time, private equity is brought in to make an ailing, breakeven business profitable.
Much more often, it's to bite off limbs until it dies, feasting on cashflow and assets.
And then the third portion of the time, the business is generating reliable, modest long-term returns, a "blue-chip" company. Private equity doubles down on future growth that is not projected, gets the company into debt to the owners, makes it worthless, compensate themselves in stock with bank leverage, issues themselves further priority stock, files bankruptcy to get rid of the pensions, and on, and on, and on with various tricks to sack whatever assets the have on their books and whatever cashflow was generating a reliable 5% return before private equity got involved.
Eastman Kodak is a good example. Fujifilm arguably sort of came out the other side but much smaller company in much different country.
B&M retail, especially in the traditional department store sense, is much reduced. Could Sears have become Amazon (presumably including AWS)? I guess. Would anyone to a first approximation who was employed at Sears still be there? Probably not. Would Sears as it existed have brought any particular assets or expertise to the table? Probably not.
At some point, reinvention is sort of pointless because it means bringing along a lot of baggage that has net negative value.
It's all bullshit. Buffet bought BNSF but the rest of the major railroads are publicly traded companies. And Berkshire Hathaway isn't private equity either.
I know a number of nursing homes had >50% mortality from COVID, as there was not even a real attempt at isolation.
While visiting hours may have been restricted, we pretended that nurses and staff (already scarce) were simply unable to transmit COVID, taking them on and off premises on regular shifts, and the result is hundreds of thousands of people killed.
Don't worry, this happens everywhere that caves to free market ideologies. In the UK local government (tax payers) get ripped off exactly the same for social care. Private equity firms know the local government has a legal duty to provide care for the elderly and those with chronic conditions. So they can charge whatever they want.
Obviously the global investors have no problem morally with this, they are more than arms reach away. It's an executive in one of the companies they own that takes the heat for a couple of weeks, and then it goes away (and the executive gets their bonus for being the face of immorality).
If anyone wonders why public services are crippled, this is the main reason.
No, this is just what happens when capitalism is treated like a religion and thus never questioned nor given safeguards against abuse.
This is also why Europe leans a lot more towards legislative oversight rather than the libertarian attitude that the market will somehow magically correct itself.
Even if in a lot of cases the market would correct, it often takes a lot of time, and with a lot of negative externalities. Society bears the cost of that.
One might accept this crap as inevitable if we were talking about a consumer market, like for barbeque grills or dog food or some such. But railroads? We're talking key infra.
So, which totalitarian dictatorships are behind this wrecking of America's railroads ? Russia? China? Norfolk Southern (et al.) ?
Why do you find it so hard to believe that this isn’t just a result of greed?
It’s not like those who are bleeding that infra dry are consumers of the service itself. And couple that with a complete lack of regulation, it means they can continue to bleed the service with literally no consequences for their actions.
…but I think it’s fair to say the rot introduced by profit at all costs goes waaaay beyond this specific infra. You could apply similar complaints for plenty of other industries too, such as Boeing.
Not in the US. I mean, not culturally. Trains here are viewed as a plague, as stupid, as a waste of time. Of course they're really important and move around a lot of shit.
I would not be surprised that the train company doesn't give 2 fucks about trains. Nobody cares about trains. If you asked the average American if shutting down the railroads would be a good thing, they'd probably say yes. They're old, nasty, derail, loud...
Freight rail is absolutely key infrastructure even if the average American doesn't think about it day to day. No, except for a few places (including commuter rail in some cities), Americans don't care about and aren't willing to pay for passenger rail given that they can drive or take a plane.
Americans do not care about freight rail and they do absolutely despise it. You can go ask Americans (hint: I live here).
There are cultural issues here as well as economic ones. You're not viewed as doing something important or something innovative, and I'm sure that can discourage you from doing it right. And if you do it right - who cares? The expectation is to do it wrong.
> Americans do not care about freight rail and they do absolutely despise it.
Yeah, but those Americans are idiots (as so many of them seem to be). Idiots not caring about or despising it doesn't change the factual matter of whether it is infrastructure vital to their lives or not.
This is way off base in my experience. I live near several freight lines and cross the tracks often. The only negative is having to wait at a crossing every once in a while, but that's a very minor problem. I've literally never heard anyone bash trains in general and want them removed. In fact, it's more the opposite. There is a niche of serious train enthusiasts that get really excited about trains of various types.
So what? Whether railroads are critical infrastructure is a totally different question from whether the average American cares about railroads.
Most of us (myself included!) didn't think of grocery store workers as critical, either. We learned that they are during Covid.
(New on my list: The person who refills the toilet paper in the restrooms at work. I saw this guy doing it one day, and it struck me how critical he was - what an absolute catastrophe would happen if nobody did that job. But if you ask the average person, that is a totally unimportant job.)
The key is realizing that the system itself creates the result - no conspiracy needed. Everything naturally results as a consequence of the way the entire system is built, as sure as water will run downhill.
That everything isn’t already like this everywhere is because of active work by individuals, companies, and governments to stop and dam the natural flow.
It is entirely frightening once you realize that total enshittification of various industries is being held back by one company or even one CEO/owner. And those times will pass.
Imagine a world without Apple, for example - how would the phone market look if it was only Google
(advertising company) and Facebook (advertising company) making phones?
Holy shit not everything is Russia, this is literally mostly americans (and other westerners) doing it to the US. This is a result of capitalism, not everything bad happening in the world is russias fault jesus
Private equity is destroying US infrastructure to make a quick buck. It's happening in almost every sector of the economy you can imagine. I'm not exaggerating when I say that PE firms are buying up nursing homes, transfering ownership of the land and building off into a separate entity, and have that entity charge the nursing home rent which keeps going up and up. This forces management of the nursing home to find ways to cut expenses until there's nothing left to cut except stuff directly related to resident care, safety, etc. Families see the writing on the wall and move their relatives out which accelerates the demise of the nursing home and it has to shut down (or is shut down, by the county/state.) Then the PE firm bulldozes the building and sells the property (which is what they really wanted.)
The US suffered a massive toxic fire in Ohio that destroyed a big chunk of the town and left a huge area heavily poisoned because a private equity firm bought the railroad and was squeezing it for every penny, and despite plenty of warnings by union officials and experts, the FRA did nothing and then...boom. Wheel bearing seized, train derailed, town polluted by hundreds of thousands of pounds of incredibly toxic chemicals like vinyl chloride.
https://www.tiktok.com/@moreperfectunion/video/7198354503823...
Precision railroad scheduling means:
- insanely strict rules about when engineers can request time off even for family medical emergencies, and sick days (so you have train engineers and other staff working while sick as dogs. Totally safe! Really stressed out employees, too - and stress means mistakes.) RR unions tried to strike twice. First congress and then and Biden bitch-slapped them back to work with a "compromise" that was still oppressive as hell because the economic disruption from the trains not running was more important. All because the railroads want to cut the number of employees down as low as possible so there aren't available engineers to replace sick ones, and they don't want delays while replacement engineers head out to trains that had to be left somewhere because the engineer was sick.
- dramatically reducing the time rolling stock maintenance crews have to inspect a car for problems - from three minutes to a minute and a half. Not only does this save labor, it means those maintenance crews don't find as much stuff wrong which takes a car out of service and costs money for the repair...woo, saving more money!
- reducing the number of employees per train; I believe it's currently two, and they're trying to push the FRA into allowing them to run one employee per train.
- increasing train lengths to reduce labor costs by moving more cars per people they have to pay. This increases the chances of derailments, and also causes other problems, like slower brake response time (the longer the train, the longer it takes for a pressure reduction in the brake line to make it to the end of the train, though I believe some end-of-train devices can be set up to remotely release brake pressure.)
- reducing track crews and time allocated to track maintenance so the tracks are more available and maintenance costs are lowered.
Keep in mind locomotive engineers are paid a median wage of $35/hour with a 10/90th percentile spread of $28/$44. These aren't enormous sums of money they're saving by going to one person on the train, particularly since it will be a lower-paid employee who is removed.
The crash was caused by overheating bearings which caused a wheelset to seize and derail the train.
It gets worse. The railroad pushed to have tanker cars intentionally burned, lied to the public, and turns out it was likely just because burning off the chemicals was cheaper and faster than a proper cleanup. Sources: https://www.tiktok.com/@moreperfectunion/video/7247656170347... and https://en.wikipedia.org/wiki/East_Palestine,_Ohio,_train_de...
Hilariously, the EPA, the railway, and "independent scientists" all declared the area safe but EPA employees visiting the sites became sick in ways similar to how residents were being affected.
The railroad companies responded to public and congressional furor by saying they'd self-regulate (!) better, and join a program similar to the FAA's close-call incident reporting system. Only one railroad has joined that system, and all but one raiload saw an increase in derailments in the following year.
The PE firms know their maintenance and staffing cuts are causing increasing problems and will destroy the railroad companies. They don't care. They're milking the railroad companies for every dime they can squeeze, leaving them in tatters from all the deferred maintenance and repairs. These companies are responsible for moving massive amounts of cargo around the country, and when they fall apart, it will be a national crisis, and the federal government will have to step in and bail the companies out because they're 'Too Big To Fail.' And the PE firms that own trucking companies will see record profits...