In 2005, The Carlyle Group added debt to German car part maker Edscha and paid itself a €60m dividend. The 139-year-old company filed for bankruptcy in 2009, despite Carlyle reinjecting €25m in the company and amid wider difficulties for the German car industry following the financial crisis.
“If companies are left very levered for protracted periods, most will suffer from the effects of low investments and sporadic crises so that the business does not prosper,” Jon Moulton, founder of private equity firm Better Capital, said. “Failures of companies post-dividend recaps will definitely bring the private equity industry back into the political focus.”
Hardly, politicians court private equity underwriters (PEU's) like The Carlyle Group and Bain Capital. Sometimes they are one and the same. Mitt Romney's Bain Capital conducted a dividend recap on WorldPay. With a new $1 billion loan, roughly $500 million in dividends will be paid to owners.