Quote:How could something that was so beloved sputter? Is the arc of kitchen goods long but bends toward obsolescence? Business schools may someday make a case study of one of Instant Pot’s vulnerabilities, namely, that it was simply too well made. Once you slapped down your ninety dollars for the Instant Pot Duo 7-in-1, you were set for life: it didn’t break, it didn’t wear out, and the company hasn’t introduced major innovations that make you want to level up. As a customer, you were one-and-done, which might make you a happy customer, but is hell on profit-and-growth performance metrics.”

Quote:The Instant Pot Failed Because It Was a Good Product

Sure enough, in 2019, when the private-equity firm Cornell Capital bought the gadget’s maker, Instant Brands, and merged it with another kitchenware maker, the combined company was reportedly valued at more than $2 billion. A few years and one pandemic later, the company filed for bankruptcy on Monday, weighed down by more than $500 million in debt after years of supply-chain chaos and limited success expanding the Instant brand into other categories of household gadgetry. Perhaps counterintuitively, that the Instant Pot remains a useful, widely appreciated gadget is not unrelated to the faltering of its parent company. In fact, it’s central to understanding exactly what went wrong.
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    “From the point of view of the consumer, this makes the Instant Pot a dream product: It does what it says, and it doesn’t cost you much or any additional money after that first purchase. It doesn’t appear to have any planned obsolescence built into it, which would prompt you to replace it at a regular clip. But from the point of view of owners and investors trying to maximize value, that makes the Instant Pot a problem. A company can’t just tootle along in perpetuity, debuting new products according to the actual pace of its good ideas, and otherwise manufacturing and selling a few versions of a durable, beloved device and its accessories, updated every few years with new features. A company needs to grow.”

Quote:“Float me a hundred and thirty mil or so? I just need it til this bankruptcy thing blows over.”

Cornell wouldn’t hold its lien on the factories for very long. A motion asking the court to approve post-petition financing in the amount of $132 million was filed the day after the initial petition, and approved the next day. The loan has been arranged through Jefferies Capital, by way of Guggenheim securities, thanks in part to Cornell’s having pledged the factories that it shielded in the subsidiaries by making them collateral against the new loan.

So here’s the timeline.

•     2017: Cornell Capital buys Instant Brands, rolls it up with Pyrex and Corning and various other cookware co’s.
  

•     2021: Instant Pot is making enough money that various lenders extend it $450 million in credit.
  
•     May 2022: With $390 million of that credit outstanding, Cornell lends Instant Brands $55 million against its factory assets, ostensibly to service its debt.
  

•     June 2023: Instant Pot files for Chapter 11 protection.
  

•     June 2023: To keep the doors open through the storm, Instant Brands borrows $132 million against factory assets pledged by Cornell.
  

Cooked? Inside the Instant Brands Bankruptcy Filing

Quote:Because it distributes generous dividends, the hedge funds will have the company take out loans to meet its operating costs. Often the money is borrowed from a company owned by the hedge fund. The company gives that hedge fund lender a lien on corporate assets ahead of other creditors so the hedge fund gets repaid in priority and there’s little left for other creditors in bankruptcy.

And they have the company borrow to do buybacks at inflated prices.

How To Make Money by Going Bankrupt

According to Pulitzer Prize winning journalist, Gretchen Morgenson, research shows that a Private Equity controlled corporation is ten times more likely to go bankrupt than a non-PE controlled business.

It’s actually quite easy if you are wealthy. Here’s how it goes. They are called engineered bankruptcies for good reason. The controlling shareholders, through the Board of Directors, cause the corporation to seek Chapter 11 bankruptcy protection.

It is critical that Chapter 11 is used so that no bankruptcy examiner who is independent, is appointed to manage the business and report to creditors. For example, Enron was not a Chapter 11 bankruptcy; so the examiner could expose the fraud by the senior executives in detail. Under Chapter 11, the CEO is left in place to run the show.

Then the vultures descend as buyers, hungrily swirling around the corporate carcass. First, the secured creditors, those that have liens on assets, seize the assets subject to their liens. The Private Equity firms have often made themselves secured creditors by giving loans to the target corporation. These loans are needed to operate the business because yearly profits are entirely stripped out in dividends to the PE funds.
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As part of the hedge fund maneuvers, you will see that when the target corporation is brought to bankruptcy, the executive pensions are often, but not always, fully funded, but workers’ pensions always take a hit. That means that workers must make a claim on a federal agency called the Pension Benefit Guaranty Corporation. This body of responsible corporations are forced to increase their contributions to this fund in order to support the Private Equity plunder.

The Looting of the Corporation: The Corporate Raiders’ Playbook