Private Equity Firms Are Piling On Debt to Pay Dividends

Part of her legislative agenda remains holding the private equity industry “accountable for what happens with their target companies,” she said in a statement late last month when asked about the Apria deal.

The dividend recap carried out by Apria was by no means the largest of 2020. Epicor Software, a company that was backed by the KKR investment group, completed a $1.9 billion deal, and Radiate Holdco, a TPG Capital-owned company, did a $2.6 billion deal, according to S&P Global Market Intelligence.

And not all borrowing necessarily went to dividends. The loans can also be used to restructure debt, and portfolio companies rarely disclose how much of the borrowed money is paid out. S&P estimates, however, that 45 percent of a dividend recap over the past five years went to paying a private equity owner.

In a recent regulatory filing, Apria, a major supplier of oxygen and respiratory devices to people living at home, said it was financially sound and generated about $1 billion in revenue and $41 million in net income in 2020. The company — which also paid a $175 million dividend in 2019 with mostly borrowed money — said it had a “relatively unburdened balance sheet with low debt levels.” Apria said it had no immediate plans to pay a dividend to shareholders after its I.P.O.

Apria and Blackstone, which will remain Apria’s majority owner, declined to comment.

Jim Baker, executive director of the Private Equity Stakeholder Project, said the main concern with using borrowed money to pay for a dividend is that it could hamstring a company’s ability to borrow new money for purposes that could help it grow.

“Debt-funded dividends do nothing to help private equity-owned companies and only put those companies at greater risk,” said Mr. Baker, whose advocacy group is backed by labor unions and other nonprofit organizations.

A report in October by Mr. Baker’s group, which focused on dividends paid out by health care companies controlled by private equity, found that several either had filed for bankruptcy or were otherwise struggling as a result. Trident USA, a provider of mobile diagnostic equipment to nursing homes and elder care facilities, filed for bankruptcy in 2019 after piling on debt to pay out $380 million in dividends to several private equity firms, including Audax Group and Frazier Healthcare Partners, several years earlier.

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