The Most Aggressive Buyout Firms Taking Debt-Financed Dividends

A Moody’s report shows which buyout firms are “particularly aggressive” in taking debt-financed dividends from the companies they own — potentially jeopardizing their ability to navigate a downturn.

Illustration by II

Illustration by II

Some buyouts firms have been aggressively helping themselves to payouts by saddling the companies they own with debt, according to Moody’s Investors Service.

Since the end of 2009, Leonard Green & Partners, American Securities, Golden Gate Capital, TPG, and Apollo Global Management have most frequently taken debt-financed dividends from companies they’ve bought, according to a new Moody’s report. Apollo stands out for ranking high among firms Moody’s views as “particularly aggressive” because the dividends are large or taken soon after a buyout, according to the report, which ranked the firms based on the number of companies that have delivered them these payouts.

When private equity firms direct companies they control to borrow for this purpose, they are benefiting themselves — not the businesses that they plan to exit through a sale or initial public offering.

“It limits their flexibility to ride through the economic cycles,” John Puchalla, a senior vice president at Moody’s, said in a phone interview. “You prefer to see a company use its balance sheet for its reinvesting in its business.”

Moody’s views debt-financed dividends as “particularly aggressive” when they are paid within about a year after a leveraged buyout, or they exceed 75 percent of a private equity firm’s initial equity investment in the deal.


Thomas H. Lee Partners, Apollo, and Blackstone Group were at top of the list of private equity firms that have taken dividends from companies about a year after buying them, the report shows. Carlyle Group, Golden Gate Capital and Apollo were listed in the report as being the most aggressive in taking large dividends.

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Since the end of 2009, Moody’s has rated 308 companies purchased by the top 16 private equity firms. The ratings have been dominated by downgrades, mainly because of failure to improve financial performance and weakening liquidity after the LBOs, Moody’s said in its report.

Carlyle Group, Clayton, Dubilier & Rice, Bain Capital, and Apollo Global Management own the highest number distressed companies, according to the credit rater. Moody’s considers companies distressed when they’re rated B3 with a “negative” outlook or below, meaning they’re at least six levels beneath investment grade.

Private equity firms have been operating in a benign market with low default rates, making it easier to attract investors to risky, debt-financed dividend deals.

Interest rates have been low since the 2008 financial crisis, resulting in a reach for yield in risky deals in the leveraged loan and high-yield bond markets, Julia Chursin, a Moody’s analyst who co-authored the report, said in a phone interview.

In the next downturn, investors may come to regret backing some of those dividend deals.

Moody’s has already added a few to its distressed list, including Give and Go Prepared Foods Corp., bought by Boston private equity firm Thomas H. Lee Partners in 2016.

The Canadian maker of baked goods gave its owner a debt-financed dividend in 2017, and in June, went into distressed territory, according to Moody’s. The company’s rating was lowered to seven levels below investment grade because of its high leverage and lack of free cash flow, according to a June 12 report from Moody’s.

Spokespeople for Thomas H. Lee Partners and Carlyle didn’t immediately provide comment about the debt-financed dividends they’ve taken. TPG, Blackstone, Apollo, Golden Gate, and American Securities declined to comment, while Leonard Green didn’t immediately respond to a request for comment.