It’s that time of year again. We’re not referring to barbecues and Slip ‘N Slides, although both hot and liquid could be used to describe conditions in leveraged lending today. No, we mean it’s time to sit back and watch as dividend recaps come alive again.
S&P Capital IQ’s Steve Miller had a great note last week on 2Q dividend activity and expectations for the current quarter. As our Chart of the Week highlights, dividends to private equity sponsors are on the rise over the past three quarters, thanks in part to the frothy market conditions issuers have enjoyed for months.
Recap volume picks up during times when more “productive” deals, such as new buyout transactions, are absent. That’s the case with equally opportunistic loan refinancings and repricings. As Miller points out, though, the current wave of dividends may not enjoy the same head of steam as have prior trends. For one thing, bank regulation has created a more subdued environment for lenders, particularly regarding toppy leverage.
Another damper has been that many recap issuers took advantage of past market conditions so have already sent cash back to investors. Not to say a reprise recap won’t get done in this climate marked by a paper shortage. Still, dividend deals aren’t always warmly welcomed by loan or bond buyers.