In This Article:
(Bloomberg) -- Car battery maker Clarios International Inc. launched a loan deal on Wednesday that will go toward paying a $4.5 billion dividend to its private equity owners — one of the largest such payouts on record.
Most Read from Bloomberg
-
NYC’s Subway Violence Deters Drive to Bring Workers Back to Office
-
NYC Condo Owners May Bear Costs of Landmark Green Building Law
The Wisconsin-based firm is to hold an investor call later in the day to pitch a $2.5 billion dollar-denominated term loan and an $800 million-equivalent euro term loan, according to people familiar with the deal who asked not to be named. The debt launch comes after the company shelved plans for an initial public offering.
The company is expected to raise a further $1.2 billion of debt by tapping high-yield bond investors shortly, the people said. The bond is likely to launch toward the end of the loan syndication process, which closes on Jan. 15, they added.
The new issuance will push Clarios’ debt pile to around $12.5 billion. Its current debt pile stands at around $8 billion, data compiled by Bloomberg shows.
The proceeds will fund a distribution to shareholders, including Brookfield Asset Management Ltd. and Canadian pension fund Caisse de Depot et Placement du Quebec, the people said.
A dividend recapitalization, where sponsors pile debt onto a portfolio company in order to fund a payout, is a typical private equity strategy used to meet return targets when a conventional exit via a sale or an IPO proves impossible or unattractive.
“From a credit standpoint, this contemplated dividend recap is obviously negative, due to the substantial rise in net leverage,” analysts at SpreadResearch wrote in a note. “Also, the raising of additional debt will probably leave lower headroom for cash generation.”
Hot Markets
A number of private equity firms used dividend recapitalizations to monetize investments last year. Most notably, UK vehicle glass repair company Belron International Ltd. sold more than €8 billion ($8.8 billion) of bonds and loans which was earmarked for a €4.3 billion dividend payout, along with some of the company’s own cash.
Such moves are typically a feature of hot debt markets.
A muted environment for M&A has led to a dearth of new-money deals, meaning companies’ private equity owners have tended to have the upper hand with investors keen to put money to work. Dividend recaps offer them that opportunity.