Pete Stavros, Co-Head of Global Private Equity at KKR, which did a $565 million dividend recap this year. (PATRICK FALLON / Getty Images)

Private equity is loading up companies with debt to juice dividends and delay their pain

Needing to make distributions to investors, PE firms have turned to one of their favorite tools: dividend recaps.

Jack Raines

8/20/24 3:27PM

I have written, a few times now, about private equity’s cash flow problem: namely, PE as an industry is now raising more funding than they are distributing back to investors, so a lot of investor capital is tied up in portfolio companies that funds haven’t been able to sell.

The life cycle of a typical PE fund might be 10-12 years, in which capital is invested over the first half of the fund’s life, and investments are sold to return capital to limited partners over the second half. However, when funds find themselves unable to exit those positions, they have a problem: where do they get the money to pay investors?

The answer: junk bonds.

PE funds use a practice known as a “dividend recapitalization” to raise new debt in order to pay their investors a cash dividend (one example is 1-800 Contacts, a KKR portfolio company, taking out a $565 million loan earlier this year), and, according to The Wall Street Journal, dividend recaps through early August 2024 have hit $43 billion, up from $7.4 billion in the same period last year.

Dividend recaps aren’t new, and the use of leveraged loans to distribute cash to investors exploded in 2020 and 2021 (according to the Journal piece, this year’s dividend recap payouts still lag behind 2021). However, in 2020 and 2021, debt was much cheaper as the Fed funds rate was close to 0%. With benchmark interest rates now sitting at 5%, the loans funding dividend recaps are more expensive to service, pressuring the portfolio companies. Additionally, despite the recent uptick in dividend recaps, capital is still being distributed to investors at an anemic rate of around 12%, down from 31.3% in 2021.

Personally, I don’t think this practice bodes well for private equity. As noted in my venture capital piece, “down rounds” are growing more popular in the venture space as startups can no longer justify their 2021 valuations, and, if they want to raise more capital, they’re going to have to take a haircut on their valuations. The same dynamic is in play in the more liquid stock market: you have to transact at market price, even if that price is below what you perceive to be the fair value.

Private equity valuations, however, tend to be subjective, and funds don’t want to mark down the value of their investments. Dividend recaps allow funds to maintain current valuations and avoid taking losses, but they’re just kicking the can down the road. Sooner or later, they will need to exit their positions, and when you do have to sell, your investment is only worth what someone else will pay for it. Loading that investment with pricey debt doesn’t make it a more attractive asset.

Tom Jones6/24/26

Prime Day is here again and Amazon’s subscription service has never been more popular

Well, it’s that time of year again: many have made their wish lists, people are scraping together the money they’ve saved to pick out a perfect gift, some are presumably leaving out refreshments for the weary delivery drivers and, more and more, drones.

It’s Amazon Prime Day — meaning that it’s the second day of the four-day promotional event that Amazon still calls Prime Day — of course, and it’s even come early this year, with the company bringing the period into late June from July, when it’s been traditionally held for the last five years.

The Prime Age

Alongside the eyes and endless clicks that the arbitrary stream of listicles on “The Best Prime Day Deals” that almost every media outlet pours into, Amazon will also be cheering the fact that there’s now more Prime users than ever before to devour the retailer and its sellers’ sometimes-contested “discounts.” Indeed, according to the latest annual estimates from Consumer Intelligence Research Partners (CIRP), there were just over 200 million American shoppers using Amazon’s massive subscription service at the end of 2025.

Max Knoblauch6/15/26

Electronic Arts launches a platform to put more ads in its games

Video game publishing giant EA launched a new platform on Monday designed to make the process of selling immersive ad space in its popular games easier.

The company says the platform, called EA Advertising, allows brands to “integrate directly into gameplay through dynamic, real-time placements, from stadium signage to custom in-game content.”

More so than other studios, EA has incorporated advertising into its most popular titles. As Kotaku points out, the company’s ad efforts stretch as far back as 2006. Several of its sports franchises already feature partnerships with brands like Visa, Lowe’s, Red Bull, and PepsiCo.

In-game advertising hasn’t exactly been embraced by fans, but industry experts expect it to ramp up as companies seek more revenue to offset higher games budgets and surging memory costs. EA rival Take-Two has taken a different approach, with CEO Strauss Zelnick recently saying the company was “not at risk of doing brand partnerships” in the forthcoming “Grand Theft Auto VI,” and that ads in full-price games seems “unfair.”

The $55 billion deal to take EA private, led by Saudi Arabia’s Public Investment Fund, is set to close at the end of this month. Being the largest leveraged buyout in history, EA will likely look for more ways to boost revenue to cover interest payments.

Electronic Arts Makes Push for Ad Dollars Tied to Sports

Millie Giles6/11/26

JM Smucker says it sold $1 billion worth of Uncrustables in FY2026

After years of booming sandwich sales, JM Smucker has finally earned a billion-dollar crust.

On Tuesday, the company reported results for fiscal year 2026, highlighting better-than-expected profits driven by higher prices for coffee and sweet baked goods. However, at another point on the earnings call, CEO Mark Smucker pointed to one particularly jammy figure: in line with previous forecasts, the company sold $1 billion worth of its (almost always) crustless sandwiches, Uncrustables, in the last year alone.

Max Knoblauch6/8/26

Paramount reportedly offers concessions to resolve multistate antitrust investigation

Paramount has reportedly offered up some concessions in an effort to prevent an antitrust lawsuit by California and about 10 other states, according to Bloomberg reporting on Monday.

Reuters first reported on the potential suit from a group of unnamed states last week, which could throw a wrench in Paramount’s plans to buy rival Warner Bros. Discovery in a Hollywood megamerger.

The list of concessions is unknown, though Bloomberg previously reported that Paramount is open to divesting some of its kids TV assets to appease EU regulators.

Late last month, reports said US regulators appeared likely to approve the $110 billion merger, following a meeting between Paramount CEO David Ellison and DOJ antitrust staffers.

Paramount Offers Concessions to Head Off State Antitrust Lawsuit

The list of concessions is unknown, though Bloomberg previously reported that Paramount is open to divesting some of its kids TV assets to appease EU regulators.

Late last month, reports said US regulators appeared likely to approve the $110 billion merger, following a meeting between Paramount CEO David Ellison and DOJ antitrust staffers.

$98B ⛽

Max Knoblauch6/8/26

The IATA released its latest financial outlook for the airline industry over the weekend, forecasting a $98 billion jump in the sector’s collective fuel bill. The world’s largest trade group representing airlines expects the oil spike to halve profits by 49% from last year to $23 billion.

The group also expects profit margins to halve year over year, falling from 2025’s 4.2% to 2%. Still, revenue is expected to climb to $1.17 trillion from $1.07 trillion.

A surge in the cost of jet fuel has rocked US and global airlines this year, leading Delta Air Lines, United Airlines, American Airlines, Southwest Airlines, JetBlue, and others to raise fares and ancillary charges like bag fees. Low-cost carriers, which operate on smaller margins, have been squeezed the hardest, resulting in Spirit’s shutdown.

“It’s a tough year for all airlines, especially those whose balance sheets had not yet recovered from COVID. And, of course, for those operating in the Gulf,” said IATA Director General Willie Walsh, who added that demand is holding up and about half of passengers expect to spend more on travel this year. “That bodes well for a strong northern summer peak season. The big unknown is how long travelers and shippers can tolerate the higher costs of connectivity.”