A dividend recapitalization (often referred to as a dividend recap) in finance is a type of leveraged recapitalization in which a payment is made to shareholders. As opposed to a typical dividend which is paid regularly from the company's earnings, a dividend recapitalization occurs when a company raises debt —e.g. by issuing bonds to fund the dividend.[1][2]
Diagram of a dividend recapitalization where debt is issued to pay a dividend to shareholders
These types of recapitalization can be minor adjustments to the capital structure of the company, or can be large changes involving a change in the power structure as well. As with other leveraged transactions, if a firm cannot make its debt payments, meet its loan covenants or rollover its debt it enters financial distress which often leads to bankruptcy. Therefore, the additional debt burden of a leveraged recapitalization makes a firm more vulnerable to unexpected business problems including recessions and financial crises.[3]
Typically a dividend recapitalization will be pursued when the equity investors are seeking to realize value from a private company but do not want to sell their interest in the business.[1][4]
Exampleedit
Between 2003 and 2007, 188 companies controlled by private equity firms issued more than $75 billion in debt that was used to pay dividends to the buyout firms.[5]
In their relatively brief period of management of Hostess Brands, maker of Twinkie brand snack cakes and other products, Apollo Global Management and C. Dean Metropoulos and Company added leverage and took a $900 million dividend, "the third largest of 2015" in the private equity industry.[6]
^ abBristow, Matthew (29 November 2010). "Dividend Recapitalizations: Cash Alternatives for Private Equity". The Journal Record. Retrieved 12 February 2020.
^Stefanova, Mariya (2015). Private Equity Accounting, Investor Reporting, and Beyond: Advanced Guide for Private Equity Managers, Institutional Investors, Investment Professionals, and Students. Upper Saddle River, NJ: FT Press. p. 203. ISBN978-0-13-376152-8.
^Creswell, Julie; Peter, Lattman (29 September 2010). "DEALBOOK; Private Equity Thrives Again, but Dark Shadows Loom". The New York Times. Retrieved 12 February 2020.
^Pearl, Joshua; Rosenbaum, Joshua (2013) [2009]. Investment Banking: Valuation, Leveraged Buyouts, and Mergers and Acquisitions (Second ed.). Hoboken, NJ: John Wiley & Sons. p. 217. ISBN978-1-118-72776-8.
^Creswell, Julie (4 October 2009). "Profits for Buyout Firms as Company Debt Soared". The New York Times. ISSN 0362-4331. Retrieved 12 February 2020.
^Corkery, Michael, and Ben Protess, "How the Twinkie Made the Super-Rich Even Richer", The New York Times, December 10, 2016. Retrieved 2016-12-11.
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dividend, recapitalization, dividend, recapitalization, often, referred, dividend, recap, finance, type, leveraged, recapitalization, which, payment, made, shareholders, opposed, typical, dividend, which, paid, regularly, from, company, earnings, dividend, rec. A dividend recapitalization often referred to as a dividend recap in finance is a type of leveraged recapitalization in which a payment is made to shareholders As opposed to a typical dividend which is paid regularly from the company s earnings a dividend recapitalization occurs when a company raises debt e g by issuing bonds to fund the dividend 1 2 Diagram of a dividend recapitalization where debt is issued to pay a dividend to shareholders These types of recapitalization can be minor adjustments to the capital structure of the company or can be large changes involving a change in the power structure as well As with other leveraged transactions if a firm cannot make its debt payments meet its loan covenants or rollover its debt it enters financial distress which often leads to bankruptcy Therefore the additional debt burden of a leveraged recapitalization makes a firm more vulnerable to unexpected business problems including recessions and financial crises 3 Typically a dividend recapitalization will be pursued when the equity investors are seeking to realize value from a private company but do not want to sell their interest in the business 1 4 Example editBetween 2003 and 2007 188 companies controlled by private equity firms issued more than 75 billion in debt that was used to pay dividends to the buyout firms 5 In their relatively brief period of management of Hostess Brands maker of Twinkie brand snack cakes and other products Apollo Global Management and C Dean Metropoulos and Company added leverage and took a 900 million dividend the third largest of 2015 in the private equity industry 6 See also editPrivate equity Leveraged recapitalizationReferences edit a b Bristow Matthew 29 November 2010 Dividend Recapitalizations Cash Alternatives for Private Equity The Journal Record Retrieved 12 February 2020 Stefanova Mariya 2015 Private Equity Accounting Investor Reporting and Beyond Advanced Guide for Private Equity Managers Institutional Investors Investment Professionals and Students Upper Saddle River NJ FT Press p 203 ISBN 978 0 13 376152 8 Creswell Julie Peter Lattman 29 September 2010 DEALBOOK Private Equity Thrives Again but Dark Shadows Loom The New York Times Retrieved 12 February 2020 Pearl Joshua Rosenbaum Joshua 2013 2009 Investment Banking Valuation Leveraged Buyouts and Mergers and Acquisitions Second ed Hoboken NJ John Wiley amp Sons p 217 ISBN 978 1 118 72776 8 Creswell Julie 4 October 2009 Profits for Buyout Firms as Company Debt Soared The New York Times ISSN 0362 4331 Retrieved 12 February 2020 Corkery Michael and Ben Protess How the Twinkie Made the Super Rich Even Richer The New York Times December 10 2016 Retrieved 2016 12 11 nbsp This private equity or venture capital related article is a stub You can help Wikipedia by expanding it vte Retrieved from https en wikipedia org w index php title Dividend recapitalization amp oldid 1177463744, wikipedia, wiki, book, books, library,
