Monday, January 2, 2012

Vampire PEUs: Uptick in Divident Bleeding

Two private equity underwriter (PEU) strategies will lever up in 2012.  Leveraged loans from prior deals will need refinancing.  Also, PEUs will wrestle with how much cash to pull from affiliates via dividends.   FT reported:

Private equity groups and financiers are expecting a strong start for the US leveraged loan market in 2012 as a light pipeline for new issues creates an opportunity to refinance portfolio companies and pay dividends to sponsors.

Dividend recapitalizations, more accurately stated, are new debt for dividends.  They're synonymous with second mortgages, where the homeowner doesn't put the money back into the house, but in their wallet. KKR and company stuck HCA for $4.25 billion in dividends, financed by $1.5 billion in additional debt.

This FT article didn't note that many deals done during 2007, an orgy of highly leveraged buyout activity, need refinancing in 2012.  Who will keep financial vampires and their offspring afloat