Take out a refinancing loan and pay yourself a big dividend,

[doodab]

How do you think private equity houses can take over a company with no debt, sack a couple of cleaners and take a £1bn profit a year later?

http://corp.bankofamerica.com/public...le=C00333.html

This has been a standard procedure for private equity for a while. As a side benefit, the interest on the loan is set off against the profits generated over the term of the loan which reduces the corporation tax bill.

[Jeebo72]

But if its come from a loan which in this case it clearly has, then its not 'profit.' And I understood divi's can only be taken from profit not just money that's come into the bank account?

I take it it's not a loan, but "refinancing". Ie he's generating funds some other way. Perhaps though additional shares? ie I ain't got a clue

[DaveB]

The loan is used to pay operating costs, as a result profits go up by the same amount, this coupled with the fact that interest paymetns are no longer due on the original loan mean profits increase, albeit temporarily, and thus a nice fat divi can be paid.

Edit :

It's not just a loan but a rights issue as well, so loadsa money into the co. accounts as a one off. Net effect is the same though.

[BolshieBastard]

Presumably if you take out a large loan you have no intention of repaying, you can class the money as profit and pay yourself a dividend.

But if its come from a loan which in this case it clearly has, then its not 'profit.' And I understood divi's can only be taken from profit not just money that's come into the bank account?

[VectraMan]

Presumably if you take out a large loan you have no intention of repaying, you can class the money as profit and pay yourself a dividend.

[Moscow Mule]

How does this work then!?

You have to have a chain of ropey clothes/tat shops before you can apply for the refinancing.

[BolshieBastard]

How does this work then!?

http://business.timesonline.co.uk/to...cle7052535.ece

"John Hargreaves, founder of Matalan, is planning to pay himself a £250m dividend as part of a refinancing of the budget fashion chain.

The Monaco-based tax exile is in talks with banks and other investors about a £525m refinancing that would be used to repay Matalan’s debt, estimated at £260m. The rest would be used for the bumper dividend to himself."