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Private Equity Firms Are Piling On Debt to Pay Dividends

Part of her legislative agenda stays holding the non-public fairness trade “accountable for what happens with their target companies,” she stated in a press release late final month when requested concerning the Apria deal.

The dividend recap carried out by Apria was certainly not the biggest of 2020. Epicor Software, a company that was backed by the KKR funding group, accomplished a $1.9 billion deal, and Radiate Holdco, a TPG Capital-owned company, did a $2.6 billion deal, in accordance to S&P Global Market Intelligence.

And not all borrowing essentially went to dividends. The loans may also be used to restructure debt, and portfolio firms not often disclose how a lot of the borrowed money is paid out. S&P estimates, nevertheless, that 45 p.c of a dividend recap over the previous 5 years went to paying a non-public fairness proprietor.

In a latest regulatory submitting, Apria, a serious provider of oxygen and respiratory units to individuals dwelling at dwelling, stated it was financially sound and generated about $1 billion in income and $41 million in web earnings in 2020. The company — which additionally paid a $175 million dividend in 2019 with largely borrowed money — stated it had a “relatively unburdened balance sheet with low debt levels.” Apria stated it had no rapid plans to pay a dividend to shareholders after its I.P.O.

Apria and Blackstone, which can stay Apria’s majority proprietor, declined to remark.

Jim Baker, government director of the Private Equity Stakeholder Project, stated the principle concern with utilizing borrowed money to pay for a dividend is that it may hamstring a company’s means to borrow new money for functions that might assist it develop.

“Debt-funded dividends do nothing to help private equity-owned companies and only put those companies at greater risk,” stated Mr. Baker, whose advocacy group is backed by labor unions and different nonprofit organizations.

A report in October by Mr. Baker’s group, which targeted on dividends paid out by well being care firms managed by non-public fairness, discovered that a number of both had filed for chapter or had been in any other case struggling consequently. Trident USA, a supplier of cell diagnostic tools to nursing properties and elder care services, filed for chapter in 2019 after piling on debt to pay out $380 million in dividends to a number of non-public fairness companies, together with Audax Group and Frazier Healthcare Partners, a number of years earlier.