Elizabeth Warren Renews Attack on Private Equity’s Debt-Fueled Fallout

Dubious debts are back again after the pandemic, and so is Elizabeth Warren, who’s renewing efforts to keep private equity firms from forcing new loans on companies they own to extract dividends that they can’t afford.

Warren, the former Harvard bankruptcy professor turned U.S. senator, is reintroducing legislation that would ban such payouts for two years after a company is acquired, a move that aims to reduce the risk that the business will collapse.

The bill, which faces long odds in a closely divided Congress, would also ban outsourcing jobs over the same span, and if the company goes bust anyway, workers would get more priority for severance and other payments they’re owed. Under current bankruptcy law, employees often wind up near the back of the line behind lawyers, bankers, executives and creditors, with little left over for workers.

“The abuses accelerated during the pandemic,” Warren, a Massachusetts Democrat, said in an interview. “There is not a person in the United States Senate who does not represent people who have lost jobs, pensions or even loved ones because of private equity.”

Warren tried before in 2019 without success to get enough support for her bill, which she plans to resubmit Wednesday. It originally debuted following the collapse of retailers like Sports Authority, Shopko and Gymboree under the weight of buyout debt, and the failure of owners at defunct chains like Toys ‘R’ Us to provide for their workers.

Whether the senator will get more traction this time isn’t clear. Warren, who sits on the powerful Senate Banking Committee, has lined up several sponsors in her own the chamber and in the House for her bill, with the unforgiving title of the “Stop Wall Street Looting Act.” It’s likely to be opposed by Wall Street’s buyout and alternative asset firms, which have billions of dollars in profit at stake and would be required to disclose more about their fees and returns, which some firms keep carefully guarded.