Mitt Romney’s Federal Bailout: The Documents

Despite Bain's censorship, the FDIC documents detail the surprising failure of the 1991 restructuring of Bain's finances engineered by Romney. The documents also illuminate, for the first time, the reckless measures that Romney resorted to in order to secure a lifeline from the federal government.

This excerpt of a 1992 analysis for the FDIC offers a recap of what was supposed to happen when Romney took charge and renegotiated Bain's debts in June 1991.

Almost immediately, however, it became clear that Romney's path to recovery was a complete failure. Bain's revenues continued to decline, and the company was soon bleeding red ink.

By March 1992 — barely nine months after the initial restructuring — Romney was hitting up the government and Bain's other creditors for a bailout, asking that the firm be allowed to repay its debts at just 35 cents on the dollar.

Why didn't Bain's creditors just push the firm into bankruptcy and divvy up its assets? After all, the firm was flush with borrowed cash following the 1991 restructuring.

The documents reveal that Romney had perverse leverage: The terms of the 1991 deal gave Bain the authority to reward its executives with massive bonuses, regardless of performance. If creditors refused to allow the firm to pay down its debt at a fraction of the legal value, in other words, Romney could begin to loot the firm's cash reserves by doling out unmerited bonus pay.

The terms of the 1991 restructuring deal required that all of Bain's creditors agree before repayment terms could be modified. Several creditors were unwilling to give in to demands for a bailout. In short: They called Romney's bluff.

Today, as a presidential candidate, Romney is running under a banner that declares: "We have a moral responsibility not to spend more than we take in." But Romney operated under a different moral calculus at the helm of Bain & Company.  Even though the firm was deeply in debt and losing money, Romney decided to place executive compensation above fiscal responsibility, paying out big bonus checks beginning in April 1992. (The Romney campaign refused to disclose whether Romney himself received a bonus.) The move was all the more egregious because Bain's top performers had just been awarded a large equity stake in the company to keep them invested in the success of the turnaround effort.

As a result of Romney's reckless bonus spree, Bain & Company was soon on the rocks.

In May 1992, an analyst warned the FDIC that Romney's firm had defaulted on the revenue targets of the 1991 loan agreement.

Worse, the bonus payouts had put Bain & Company on a path to bankruptcy, as this July 1992 document records.

Attempting to cut its losses, the FDIC explored the option of selling its stake in Bain & Company. But by August 1992, analysts reported to the agency that Bain & Company had "no value as a going concern."

By December 1992, Bain & Company had returned to its creditors, proposing a new bailout with even less favorable terms: The firm asked to repay its debts at "up to $.30 on each dollar."

If creditors didn't agree? Management would once again raid the company's coffers to pay themselves fat bonus checks.

According to Romney legend — and to this official history on Bain's website  — "Mr. Romney left Bain & Company in 1992 to return to Bain Capital."

But the government documents obtained by Rolling Stone reveal that Romney remained in an official capacity with Bain & Company well into 1993, and that he was intimately involved in finessing the firm's bailout.

This March 11, 1993 document detailing the final proposal for FDIC's bailout of Bain lists "Mit Romney" [sic] as the sole entry under "principals" for the consulting firm.

In the end, the FDIC — in concert with other creditors — capitulated, agreeing to Romney's demands to do away with much of Bain's debt.

The terms of the final proposal are discussed in the same March 11, 1993 document.

The FDIC ultimately agreed to give Bain & Company a $10 million bailout (in the form of "debt forgiveness"). The reason: analysts working for the agency — through a company called RECOLL — believed that Romney's firm would otherwise "fail," and the government would see very little money from the firm's dissolution after Romney doled out the final round of bonus pay.

To secure his bailout, Romney wrote a personal appeal on Bain & Company letterhead dated March 23, 1993, assuring balky creditors that his latest scheme would lead  the firm back to "long term financial stability."

The government records show that Bain & Company's final agreement with the FDIC was signed just a week later, on March 31, 1993.