Private equity firms are called that because they own stakes in the companies they buy. Today, this assumption is looking ever more outdated.
As buyout funds struggle to sell businesses in a moribund M&A market — not helped by President Donald Trump’s tariff gyrations — many are turning to cash-rich credit investors for money to pay dividends to themselves and their backers. A few are getting back as much as they first invested, if not more, in effect leaving them with little or no equity in some of their biggest companies.
Already this year, more than 20 businesses in the US and Europe have borrowed to make payouts to their owners, according to Bloomberg-compiled data, meaning they’ve less financial “skin in the game” if things ever go sour.
Car battery maker Clarios International Inc. raised debt to pay a $4.5 billion dividend to its buyout-fund backers, one of the largest such payouts on record. That paid for a distribution to investors, including Brookfield Asset Management Ltd. and Caisse de Depot et Placement du Quebec, letting them take the equivalent of 1.5 times their equity out of the deal, according to people familiar with the matter who asked not to be identified because the deal is private.
Trench Group, a power-equipment maker owned by Triton Partners, raised a €380 million ($414 million) leveraged loan this month to refinance existing debt and pay a €170 million dividend. That payout saw owners recoup most of the €200 million of equity they put into the German business when they bought it less than a year ago, people familiar said.
Spokespeople for Brookfield, CDPQ and Triton declined to comment.
These “dividend recap” deals are proving attractive to lenders, who are desperate to deploy cash, and some senior bankers say they’re a valuable way to rework the finances of stronger companies when public markets are constrained. Clarios, for example, had lifted earnings, and paid down $1.6 billion of debt over its past three fiscal years, a person with knowledge said.
More broadly, however, some worry about private equity firms loading yet more borrowing onto their companies. There’s concern, too, over whether owners will be fully incentivized to invest extra money in a business if needed, when they’ve already recovered much of their initial equity.
“In the absence of an exit via a sale, it’s no wonder PE sponsors are looking to leverage market dynamics to return capital to investors through further borrowings,” said Sabrina Fox of Fox Legal Training, a leveraged finance expert. “The question is whether capital structures can tolerate the additional leverage. Absent a shock to the system, perhaps some can. But we’re by no means guaranteed no shocks to the system.”
Another Lever
Lenders usually dislike companies selling more debt to pay their PE owners chunky dividends because it puts another burden on a business. The buyout industry has already been making liberal use of tools to outlast the M&A slump, including “payment in kind” loans that let companies defer interest payments in exchange for taking on even costlier debt, and “net asset value” loans that let private equity firms borrow against their holdings.
But with too much cash chasing too few loan deals, given the dearth of M&A, investors are once again holding their noses and buying.
Clarios raised the debt after shelving plans for an initial public offering, suggesting credit investors valued it more highly than equity markets. The deal was so popular that the loan was upsized and pricing tightened. Trench’s deal was oversubscribed and its pricing tightened, too, people familiar said.
“There’s a realization from sponsors that the credit markets are in very good shape,” said Daniel Rudnicki Schlumberger, JPMorgan Chase & Co.’s head of EMEA leveraged finance. “There’s also potentially wider macro volatility, so putting in place capital structures to push out maturities, increasing debt to pay a dividend and overall cheapen the cost of capital is the right thing to do.”
Last year saw the most US dividend recaps since 2021, according to data compiled by Bloomberg, and the pace in 2025 has been quicker still. Bankers are pitching them to every buyout firm willing to listen, people familiar said.
Lenders are vying to provide about €6.25 billion in debt for Adevinta AS, an online classifieds group, which will let its sponsors take up to €1.75 billion in dividends, 18 months after Blackstone Inc. and Permira agreed to buy it. Spokespeople for the buyout firms declined to comment.
The private equity owners of Group of Butchers, an artisanal food supplier, are set to take out about €350 million in a dividend as part of a wider €705 million loan package, people with knowledge of the situation said. Backers of TSG Solutions look set to take close to €160 million using the company’s cash alongside a €600 million loan deal, other people said. Representatives for the owners of both companies didn't respond to requests for comment.
If credit investors are already lenders to a company, increasing their exposure can be an easy way to deploy more cash, but these deals only really work if the business is decent. It requires “a good company, performing well, in a solid sector and leverage has to be reasonable,” Schlumberger said, “even if there’s no cash equity left.”
Falling Grades
The payouts sometimes carry a cost. S&P Global Ratings downgraded commercial-roofing company Tecta America Corp.’s credit rating by a notch to B after sponsors Atlas Partners and Leonard Green & Partners extracted $444 million in a payout, as part of a $1.3 billion refinancing.
An important consideration for buyout funds is when they get their “carry,” the profit share they receive when selling a company or hitting other milestones. Some will get it when equity’s returned after a recap, market participants say. Others will only do so once a certain return is made on their original stake.
That leaves open the door to multiple dividend recaps on the same company, although it might be a harder sell to investors.
For the main part, the rush of deals is expected to continue, amid huge inflows into debt funds and the record issuance of collateralized-loan obligations — the biggest buyers of leveraged loans. And buyout firms will be busily reducing their own stakes alongside, with one top loan banker jokingly describing equity as an old-fashioned concept.
“So long as markets stay strong, lenders will be willing to entertain portfolio company dividends to, in effect, return equity investment in the given company,” said Jeremy Duffy, a leveraged-finance partner at White & Case.
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