Private equity firms are using debt-funded dividend recaps to pay back investors as IPOs and sales stay weak. Moody’s says the practice could remain elevated in EMEA, but it adds leverage to portfolio companies.
01Summary
- 01Private equity-owned companies in Europe, the Middle East and Africa could take on a further 41 billion euros ($46 billion) of debt before typical downgrade levels, according to Moody’s.
- 02Moody’s said dividend recap activity has surged since 2022 as IPOs and other exit routes have remained subdued.
- 03Private equity distributions fell from more than 30% of starting net asset value in 2022 to about 12% today, according to Moody’s citing PitchBook data.
- 04Moody’s said the most active sectors for dividend recaps are services, consumer products and manufacturing.
- 05Dividend recaps are usually financed through broadly syndicated loans, high-yield bonds or private credit borrowing.
02Why it matters
The trend affects how much debt sits on corporate balance sheets and how much cash private equity investors can take out. It also matters because a prolonged IPO drought could leave companies with less financial flexibility if trading weakens.
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