(Bloomberg) — Private equity firms, struggling to find buyers for their investments, are turning to an old playbook like never before.
Financial sponsors are extracting cash from their portfolio companies by raising debt to fund payouts to themselves and their investors at an unprecedented clip. Such dividend loans have hit $28.7 billion so far this year, putting them on track to surpass 2021’s record $28.8 billion, according to data compiled by Bloomberg.
Most Read from Bloomberg
Their efforts come as the private equity machine hits snarls at nearly every turn: Attractive takeover targets are sparse and it’s harder to cash out old investments and deliver the returns once promised to pension managers, foundations and wealthy individuals. To quell impatient investors, buyout shops are increasingly layering extra borrowing on their companies and funneling the proceeds of debt sales to their stakeholders instead.
“All the stars are aligned for dividend recaps; rates are coming down, spreads are tight, the market is open — yet the IPO market and M&A are still subdued,” Bill Zox, a portfolio manager at Brandywine Global Investment Management, said. “Investors want distributions, and dividend recaps can buy PE firms more time to wait for a better environment for exits.”
Private equity firms have routinely used dividend recapitalizations to book profits and take skin out of the game after they acquire companies. Such deals can be seen as controversial and aggressive, often leading debt investors — fearing the strain of the additional debt — to push back. But with demand for loans likely outpacing supply of new debt this year, borrowers have an upper hand.
This month, private equity firm Thoma Bravo priced a $750 million loan for cybersecurity firm Darktrace to fund a distribution to shareholders, in what Fitch Ratings called “an aggressive financial policy with high leverage.”
In October, Thoma Bravo raised debt on Ping Identity Holding Corp. to help fund a roughly $1 billion payout. Earlier this year, another one of its portfolio companies, Proofpoint Inc., obtained a $1.35 billion loan to fund a payment to the buyout firm and employees. Other recent deals included a $1.35 billion leveraged loan by yogurt maker Chobani Inc. to partly finance a payout.
Buyout firms and their clients are relying on alternative methods to unlock cash. They’re shuffling assets out of older vehicles into what are known as continuation funds, selling stakes on the secondary market and borrowing against holdings through complex loans with high interest rates.
The industry’s fund distributions have slowed so drastically that, at the current rate, it would take about nine years for customers to collect their money from the more than 12,000 companies held by US buyout funds, according to Pitchbook. That’s making limited partners reluctant to step up fresh capital, with Bain & Co. estimating in a mid-year report that there were more than 18,000 private capital funds seeking $3.3 trillion.
“The reason that sponsors are doing it, and driving most of this, is realistically because they have struggled to monetize their investments,” Matthew Mish, head of public and private credit strategy at UBS Group AG, said. “The IPO market has started to thaw but is not really providing an exit. The LPs are not getting their money back.”
Scarce Supply
Helping fuel the dividend deals is the market’s supply-demand dynamic. Roughly $915 billion of loans have been sold in 2025, about 16% lower than the same period last year. Of that debt, some 80% has been for loan refinancings and repricings, meaning there has been relatively little new debt to buy.
Another driver is collateralized loan obligations, structured credit vehicles that are the largest buyers of leveraged loans. CLOs are financed by issuing bonds. There have been more than $151 billion of the debt backed by syndicated loans sold in 2025, up about 4.7% from the same time last year, according to the Bloomberg data.
“The problem is the deals aren’t performing. And so when they don’t perform, even if I want to sell mine, I’m not going to sell it to the other PE guy that knows that he has his own deals that aren’t performing and he doesn’t want mine,” Mish said. “The easiest thing to do is to do a recapitalization and sell it to a less credit discriminate investor, which is a CLO.”
WATCH: This week’s guests include Federated Hermes Senior Portfolio Manager Deborah Cunningham, Columbia Threadneedle Fixed Income Portfolio Manager Ed Al-Hussainy, UBS Global Wealth Management Head of Taxable Fixed Income Strategy Leslie Falconio and AEGON Asset Management Global Head of Leveraged Finance Jim Schaeffer.Federated Hermes Senior Portfolio Manager Deborah Cunningham, Columbia Threadneedle Fixed Income Portfolio Manager Ed Al-Hussainy, UBS Global Wealth Management Head of Taxable Fixed Income Strategy Leslie Falconio and AEGON Asset Management Global Head of Leveraged Finance Jim Schaeffer.
Click here for a podcast with Vanguard on reservations it has on junk bonds
Week In Review
Oracle Corp., the once stodgy database giant that’s borrowed tens of billions and tethered its fortunes to the AI boom, is quickly emerging as the credit market’s barometer for AI risk.
Amazon.com Inc. raised $15 billion in its first US dollar bond offering in three years, adding to a spree of jumbo debt sales by technology firms as they race to fund artificial-intelligence infrastructure.
Citadel Securities LLC started making markets for two baskets of corporate bonds issued by Microsoft Corp., Amazon.com Inc., Alphabet Inc. and Meta Platforms Inc., as investors look for more liquid ways to speculate on massive investments in AI.
Blue Owl Capital Inc. is calling off a merger of two of its private-credit funds after scrutiny over potential investor losses from the move sent its shares tumbling.
An education software provider backed by Permira managed to negotiate some of the lowest borrowing costs ever seen in the European private credit market.
State-backed developer China Jinmao Holdings Group Ltd. is planning its first overseas bond in more than three years, in what would be the latest test of investor willingness to wade back into a sector stung by years of crisis.
Wall Street banks are looking to tap private credit to help finance Novacap Investments Inc.’s acquisition of Integral Ad Science Holding Corp. after an approach to leveraged loan investors fell flat.
JPMorgan Chase & Co.’s asset management arm is pitching private markets as essential ballast to investor portfolios amid stretched stock valuations and unreliable bond hedges.
Abbott Laboratories teed up the largest high-grade bridge loan this year — a $20 billion facility from Morgan Stanley — to fund its acquisition of Exact Sciences Corp.
JPMorgan Chase & Co. and Bank of America Corp. are among a group of banks involved in a $7.9 billion cross-border debt financing backing Clayton Dubilier & Rice’s acquisition of Sealed Air, the packaging company best known for creating bubble wrap.
Subprime auto lending company Flagship Credit Acceptance agreed to sell its business operations and other assets to specialty finance firm InterVest Capital Partners, a deal that comes as headwinds in the industry are raising concerns over the quality of auto loans.
Wes Edens’ New Fortress Energy Inc. struck an agreement with creditors to delay interest payments on some of its borrowings, as it continues to navigate a debt burden amid project delays and dwindling cash flow.
On the Move
The co-heads of UBS O’Connor’s capital solutions strategy will no longer run its funds as Cantor Fitzgerald LP finalizes a planned acquisition of the hedge fund unit. UBS Group told investors last month that Rodrigo Trelles and Baxter Wasson had opted not to accept jobs at Cantor, which had agreed to buy the Swiss bank’s hedge fund unit earlier this year.
DWS Group, an asset management arm of Deutsche Bank AG, has dismissed its Asia Pacific private credit team as it removes the region from its global private credit strategy.
Jefferies Financial Group Inc. hired Sanjeev Aggarwal from Mizuho Financial Group Inc. to lead its private credit advisory business in India, the latest firm to wade into the nation’s booming alternative funding market.
Private financing firms are expanding their infrastructure debt teams as Singapore pushes to reduce carbon emissions across the region, notably Southeast Asia. Global Infrastructure Partners LP hired Saul Raccah as managing director for infrastructure private debt, while Pentagreen Capital named Vaibhav Totla managing director for debt investments in sustainable infrastructure.
Leave a Comment
Your email address will not be published. Required fields are marked *