Private Equity Firms Use Debt Deals to Pay Dividends Amidst Pressure to Return Money to Clients

Private equity firms are launching debt deals to pay dividends to their owners, amid pressure to return money to clients. Companies such as Wolseley Group, Aggreko, and Currenta Group have offered debt to fund distributions, with proceeds used for dividends and debt refinancing. This trend coincides with a positive risk sentiment in the market. However, it may create "zombie companies" with too much debt in a higher rate environment.

Private equity firms are increasingly turning to debt deals to pay dividends to their owners, a trend driven by the need to return money to clients. Companies such as Wolseley Group, Aggreko, and Currenta Group have recently offered debt to fund distributions, with proceeds used for dividends and debt refinancing. This move coincides with a positive risk sentiment in the market, as evidenced by the drop in the iTraxx Crossover index to its lowest levels since late March [1].

Wolseley Group, backed by Clayton Dubilier & Rice, announced a £350 million ($462 million) senior secured bond sale, with proceeds earmarked for a distribution to shareholders and to refinance existing debt [1]. Similarly, Aggreko Ltd offered $2.085 billion of debt, with $323 million allocated for a dividend distribution to owners TDR Capital and I Squared Capital [1]. Currenta Group, a German chemicals company, priced a €1 billion ($1.1 billion) bond sale, with €186 million for a distribution to owner Macquarie Group Ltd [1]. Czech pharma company Zentiva also priced a €600 million term loan partly to fund a distribution to shareholder Advent International [1].

Market conditions appear receptive, with European credit risk returning to pre-tariff levels. This is a boon for private equity firms, who are taking the longest time in more than a decade to give investors their money back [1]. However, the trend raises concerns about the potential for creating "zombie companies" with too much debt in a higher rate environment [1].

Nicolas Jullien, head of fixed income at Candriam SA, noted that while private equity firms need to monetize their assets, such debt-for-dividend deals come with risks, especially in a higher rate environment [1]. Private equity executives argue that some businesses are well-positioned to take on additional debt due to reduced leverage and strong balance sheets [1].

The trend of private equity firms using debt to pay dividends is not without precedent. In 2024, the buyout industry was sitting on some $3.6 trillion of unrealized value across 29,000 unsold portfolio companies, according to Bain & Co. Distributions to investors as a share of net asset value fell to a record 11% last year, compared with an average 25% [1].

While the market conditions are favorable, the long-term sustainability of this trend remains to be seen. As the market continues to evolve, investors should closely monitor the financial health of these companies and the potential risks associated with increased debt levels.

References:
[1] https://www.bloomberg.com/news/articles/2025-05-13/buyout-firms-ramp-up-debt-deals-to-pay-out-dividends