As if Prime Computer Inc did not have enough to contend with as its new owner J H Whitney Co slams the breaks on its research and development effort and orders grinding cost-cutting measures throughout the company, it is now faced with a shower of bad publicity that will keep in the limelight the fact that conventional wisdom says that high technology companies are totally unsuitable leveraged buyout candidates – their hunger for cash to keep up with the pace of technology is insatiable, but buy-out merchants need a strong cash stream to make the deal pay and keep the company alive. The Wall Street Journal blew the lid off the embarrassing circumstances on Friday with a deeply-researched price on how the blue-bloods of the US banking fraternity used their ivy-league old boy network to put together funding for a deal that in normal circumstances the institutions in question would have dismissed as a joke.The upshot is that Shearson Lehman Hutton Inc is left holding what was intended to be a temporary bridging loan of $500m that pays 5 percentage points over prime rate and could go as high as 10 points in August, and Chemical Bank has a $355m bank loan it has been unable to lay off. The problem for Prime is that even if its customers knew nothing of the risk in junk financing, the publicity will ensure they know all about it now.
