Wednesday, October 31, 2012

PEU Liquidity Recaps (Dividend Bleeding) Soar

Private equity underwriters (PEU's) saddled affiliates with debt in order to pay huge dividends to the PEU parent:  At least that's the pattern for 2012, according to Pensions & Investments:

LBO shops (private equity underwriters) have taken out 91 cents in dividends for every dollar of capital they've invested this year.

It's not just traditional debt being added to affiliate balance sheets.

Risky types of debt unseen since last decade are resurfacing, such as PIK-toggle notes. PIK-toggles, which NBTY used to finance its dividend to Carlyle, are bonds that allow borrowers to delay payments to creditors in exchange for increasing their debt load. The default rate for companies that use this form of financing is double the rate of similar companies, according to Moody's.
The Carlyle Group bled numerous affiliates for dividends.  Carlyle co-founder David Rubenstein has been fearless in liquidity recaps.  It's but one of many ways PEU's rake it in.