The IPO drought is driving private equity-owned companies to the debt market to pay investors
Private equity firms are increasingly using debt-funded dividend recaps to return cash to investors as exits remain subdued.

TL;DR
- Private equity funds are increasing dividend recapitalizations on portfolio companies due to a decline in IPOs and company sales.
- This practice involves adding debt to companies to return cash to investors, which can weaken their financial stability.
- Moody's Ratings expects high levels of dividend recapitalizations in EMEA as firms seek ways to return money to investors.
- Private equity-owned companies in EMEA could take on an additional 41 billion euros in debt before reaching downgrade triggers.
- The practice is currently limited to strong-performing companies, but an extended exit backlog could lead sponsors to monetize weaker credits.
- Documentation has become more permissive for issuers looking to raise additional debt compared to a decade ago.
- Distributions to investors have significantly decreased, falling from over 30% of net asset value in 2022 to about 12% currently.