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Private equity firms desperate for cash turn to a familiar trick

Dividend recaps let private-equity firms get money from existing portfolio companies without having to sell them. (Image: Pixabay)
Dividend recaps let private-equity firms get money from existing portfolio companies without having to sell them. (Image: Pixabay)

Summary

Companies backed by firms are taking on more risky debt to pay dividends to investors.

Private-equity firms eager to pay their investors are returning to an old habit: loading up companies with risky debt.

The rush into junk debt is letting buyout firms deliver payments to investors—and themselves—during a sharp slowdown in deals that is making it hard to sell portfolio companies. The transactions, which rely on low-rated debt, are known on Wall Street as dividend recapitalizations.

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