Private equity firms in Europe, the Middle East and Africa have €41 billion ($46 billion) of additional debt capacity before leverage risks ratings downgrades, according to Moody's Ratings. This headroom should keep dividend recapitalizations elevated as exits remain challenging. Higher interest rates, geopolitical tensions, and valuation gaps have slowed dealmaking, pushing distributions to investors well below historical levels. Buyout firms hold $3.8 trillion in unsold assets with average holding periods now at seven years, up from five years in 2010.
Recent deals highlight strong investor demand. Spanish fuel retailer Plenergy raised a €400 million leveraged loan this month, tightening pricing from 400 to 375 basis points. Health supplement maker Sunday Natural priced a €515 million deal in September. Moody's notes these recaps involve strongly performing companies with cash flow to sustain extra debt, and issuers typically build significant buffers beforehand.
While not all €41 billion will fund dividend recaps, the strategy remains attractive for cash-healthy companies with limited reinvestment opportunities held beyond typical four-to-five-year periods.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing