Asset Stripper

  

Categories: Banking, Entrepreneur

Colonel Electric, before it was demoted, used to have really great assets. A jet engine division. All kinds of finance. Real estate. It even owned NBC. But then everything kind of imploded and the stock price sank and it's likely that ASSET STRIPPERS are looking hungrily, hoping to buy the whole company for a song. Once they get it, the goal will be to auction off whatever key parts were left of the once-great conglomerate.

That process is called asset stripping (which is very different from what the process would be if the same term had the "et" removed).

For a more street-level example, think of buying a rundown junker of a car and selling it for parts. The amount you can get from the bits and pieces (the tires, the engine, even the airbags) is more than the whole car is worth...it's just a matter of putting in the work to strip it down.

Related or Semi-related Video

Finance: What is STRIPS?2 Views

00:00

Finance allah shmoop What are strips Well they're just government

00:07

back zero coupon bonds They pay no interest along the

00:10

way And then at the very end after being sold

00:13

at a meaningful discount to par well they pay far

00:16

and everyone goes away Happy ish All right well strips

00:19

stands for separate trading Registered interest principle of securities strips

00:25

Yeah and not nearly as exciting as you were hoping

00:27

right Well strips became a thing in nineteen eighty five

00:30

as the government zero coupon vehicle of choice Replacing older

00:34

forms of money raising The basic idea was to feed

00:37

and ever more complex hunger among investors wanting different flavors

00:42

of debt food and stripping principle in various forms Help

00:45

to at least partially feed that beast well in this

00:48

case the coupons can be stripped from the principle So

00:51

in the case of say fifteen year paper there are

00:54

thirty one elements of payment or thirty one payments to

00:57

be made where thirty of them are coupons or semi

01:00

annual interest payments And those can be packaged as one

01:04

suite of a product And then there is a final

01:07

payment of principle That's the thirty first flavor there you

01:10

know like baskin robbins you know investors can buy them

01:13

separately or combined as it suits their needs And you

01:16

can imagine having just bought a building which carries a

01:18

tax deductible interest costs via debt procured to buy it

01:22

That interest cost to the company's in one hundred grand

01:24

a month Well in order to defeat ease that interest

01:27

costs five dollar word there The company might also by

01:31

strips where they're just buying the coupons from it for

01:35

an offering that pace a four hundred grand twice a

01:38

year in stripped coupons Well that way eight hundred thousand

01:41

boxes with one point two million owed in those monthly

01:44

pay payments on the building are defused and the company

01:48

only has to stress about the remaining four hundred grand

01:51

to cover their brand spanking new building interest costs Well

01:54

at the other end of the liquidity spectrum a company

01:57

might not need any cash for fifteen years and they're

02:00

happy just getting very safe Us government backed interest in

02:04

buying the principal at a discount and then fifteen years

02:06

later cashing in getting the cash getting back to par

02:10

Well either way it's Nice to have a little bit

02:11

Of cash left at the end of the day Especially

02:13

if you're planning to stop by the zero coupon bondage

02:15

parlor That's A different kind of stripping But we didn't

02:18

go there because we're just doing fifty shades of shmoop 00:02:20.83 --> [endTime] here A while

Up Next

Finance: What is Disintermediation?
9 Views

What is Disintermediation? The process by which an institutional investor withdraws its funds from intermediary financial companies, such as broker...

Finance: What is Coupon Stripping?
3 Views

What is Coupon Stripping? Coupon stripping is the process of taking a coupon bearing bond and separating the coupons into individual zero coupon se...

Finance: What is a Corporate Raider?
37 Views

What is a Corporate Raider? A corporate raider is a predatory investor who purchases a significant bloc of stock or debt in a public company in ord...

Finance: What is a Dutch Auction?
3 Views

What is a Dutch Auction? A Dutch Auction is either one where closed quantity and price bids are entered and the price is set at the highest price t...

Find other enlightening terms in Shmoop Finance Genius Bar(f)