Charterhouse Capital Partners, KKR & Co. and other private-equity companies are raising the most loans to pay themselves dividends from their European corporate investments in more than five years.
Companies owned by the buyout firms borrowed 4.1 billion euros ($5.5 billion) for payouts this year, more than double the 1.8 billion euros raised in 2012 and higher than any year since 2008, according to data compiled by Standard & Poor’s Capital IQ Leveraged Commentary and Data. Visma Group, a Norwegian software maker majority-owned by KKR, increased its loans to 8.1 billion kroner ($1.39 billion) to help fund a shareholder payment while U.K. retailer Card Factory Ltd. is seeking a 165 million-pound ($265 million) term loan for a dividend to Charterhouse, according to data compiled by Bloomberg.
Private-equity companies are extracting income from the businesses they own as borrowing costs from the U.S. to Europe to Japan are held at record lows and their investments are changing hands at the slowest rate since 2009. The firms have sold $29 billion of European companies this year compared with $57 billion in the whole of 2012 and $94 billion in 2011, according to data compiled by Bloomberg.
“Banks are more willing to allow sponsors to take dividends from the business,” Jonathan Guise, a London-based partner at debt advisory firm Marlborough Partners, said in a telephone interview. “This year has been characterized by a subdued M&A market alongside buoyant conditions in debt markets.”
Prices of leveraged loans in Europe have risen about 3 percent this year, according to Standard & Poor’s European Leveraged Loan Index, which on Sept. 12 reached its highest level since June 2011. Contracts on the Markit iTraxx Crossover Index of credit-default swaps linked to 50 companies with mostly high-yield credit ratings cost 388 basis points at 12 p.m. in London, Bloomberg data show.
“Investors will be wary about these types of transaction given the higher default rates seen in dividend recap transactions syndicated pre-crisis,” said David Milward, London-based head of loans at Henderson Global Investors Ltd. “I expect this trend to be on-going. The pricing and structures look okay for the moment.”
Visma Group’s lenders agreed to the Oslo-based company borrowing an additional 2 billion kroner to help fund a dividend and for new investments, people with knowledge of the deal have said. Card Factory’s 165 million-pound term loan C is offered to lenders and may pay an interest margin of 500 to 525 basis points, or 5 or 5.25 percentage points, more than benchmarks.
M7 Group, a Luxembourg-based satellite broadcaster part-owned by Providence Equity Partners Inc., obtained 355 million euros of loans this week to help make a payment to shareholders, Bloomberg data show. The debt includes a 270 million-euro term loan B paying a margin of 475 basis points, or 4.75 percentage points.
“We are seeing situations where the sponsor is looking at a recapitalization of the business alongside a potential sale,” said Neel Sachdev, a London-based partner at law firm Kirkland & Ellis LLP.
Scandlines, a Danish-German ferry operator owned by 3i Group Plc and Allianz Capital Partners GmbH, is seeking to refinance its loans, the private-equity firms said earlier this month. The potential 800 million-euro deal follows an attempted sale of the business earlier this year that attracted lower than expected bids. 3i is offering to buy its private-equity partner’s stake, they said in the statement.
British mobile phone retailer Phones 4u Finance Plc obtained 205 million pounds of bonds on Sept. 18 that can be used to pay a dividend to owner BC Partners Ltd, Bloomberg data show. The notes, issued by its Phosphorus Holdco Plc unit, are payment-in-kind toggle securities, where the borrower can pay interest using more debt.
“Sponsors are increasingly looking at using holdco PIK debt to achieve the desired outcome due to strong demand for high yielding PIK or PIK toggle securities,” Sachdev said.
-- Editors: Faris Khan, Tom Freke