Biggest recaps since the start of the financial crisis reflect revival of lending environment.
Dividend recapitalizations are among the loan market’s least favorite type of deal. So it’s notable that several new loans designed to fund large dividends to financial sponsors have been making the rounds in recent weeks. While they don’t herald a return to the “de-equitization” craze of the 2005-2007 timeframe, they should give financial sponsors a bit of breathing room. And they certainly show that the loan market has regained at least some of its risk appetite.
Among the deals is a $1.1 billion package of secured and unsecured term loans for NEW Customer Service, which will fund a $450 million dividend for owner Berkshire Partners. The transaction is the largest loan-financed dividend since the start of the financial crisis, according to Standard & Poor’s Leveraged Commentary & Data. It comes on the heels of a loan for Anchor Glass Container that funded a $340 million dividend in February, and a transaction in the works for Intergraph that will partly fund a $350 million dividend.
These deals don’t plumb the pricing depths of the credit boom by any means. The Intergraph transaction’s price talk was Libor+400, for example. And credit scrutiny in the syndicated loan market remains high—there is little demand for highly geared paper since banks are using a lot more of their own balance sheets, and capital, to warehouse their loans. Nonetheless, it’s notable from a credit appetite perspective that dividend recaps, a common sight during the credit boom, have reappeared.