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 Today, this assumption is looking ever more outdated.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 U.S. 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 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 and C$434 billion ($302 billion) Caisse de Depot et Placement du Quebec, Montreal, 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 ($413 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 in 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 in 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 have an incentive 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 private equity 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 mergers and acquisitions, 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, J.P. Morgan Chase’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 U.S. 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 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 really work only 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.”
