Felix Salmon

The LBO of Hilton hotels made no sense even at the time: I described it as crazy, adding that the lenders (including Bear Stearns, bless ‘em) were “taking equity-like risk” for pretty modest returns. So it comes as no surprise to learn that Blackstone, the buyer, has not only written down its investment by half, but is also looking to restructure Hilton’s debt.

The interesting thing here is the way that Blackstone is planning to do this: it essentially wants to convert Hilton’s outstanding loans into bonds. Which might come as some relief to the US taxpayer: we own a whopping $4 billion of Hilton debt inherited as part of the Bear Stearns bailout. If the bond markets are frothy enough to show appetite for Hilton debt right now, I’d happily sell it to them.

Update: See also the way that Warner Music Group turned $1.1 billion of loans into bonds. Although, as Vipal Monga notes, a lot of the time “refinancing loans doesn’t eliminate the debt, it just replaces lower-priced loans with more expensive bonds, increasing the interest burden on the companies”.