PE firms increasingly paying themselves dividends through new portfolio company debt – report

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Private equity firms are using portfolio company loans to pay themselves dividends at the highest ratio in five years as demand for corporate debt soars amid the coronavirus crisis.

The FT reported that almost 24% of cash raised in the US loan market this month so far has been used to fund PE dividends, up from an average of less than 4% over the past two years.

It cited monthly data from S&P Global Market Intelligence.

Dividend recaps were a hallmark of the buyout industry in the runup to the 2008 global financial crash, with firms taking the opportunity to load up businesses with cheap debt in order to extract money for their funds.

That led to some spectacular failures post-financial crash, and plenty of businesses even now are fighting to shake off the debt burdens incurred through PE ownership over the last decade or so.

The FT cited cloud computing company ECi software as the latest example, with owner Apax Partners set to take out $118m through a dividend recap as the company takes on $740m in new loans.

The report added that more than $4bn of the $15bn borrowed in the loan market this month is set to be paid out in dividends, with another $2bn potentially coming before the end of September if deals are completed in time.

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