Benjamin discusses deleveraging by comparing and contrasting past and current applications. In past recessions, companies deleveraged assets by issuing dilute of stock to the parent company’s balance sheet. In this recession, Private Equity is willing to take the leverage and the sub-prime assets off of the majors’ balance sheets.
Benjamin questions whether the majors are “throwing the baby out with the bathwater” when they do this. You rarely need to go to a financial intermediary unless the deleveraging process is not material to the major, but if an asset is worth over 2-3% of their market cap, then they should be returning that value to their shareholders. Benjamin references a company back in the 1980s that was able to create more value by spinning out assets into new companies than the parent company ever had.
Shareholders should demand that the majors do this over just giving assets to a PE fund. Benjamin finishes by pointing out that, while the value of assets are down during this recession, it is better in the long run to return those undervalued assets to shareholders; he argues that this is preferable even over what cash value you would receive by giving it to a PE fund, because once the market returns, those assets will as well.