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A company backed by Clayton, Dubilier & Rice and Hellman & Friedman, BlackRock and GIC is preparing one of the largest debt-fuelled dividend payouts in private equity history, as companies owned by buyout firms take advantage of a recovery in debt markets to return cash to investors.
Belron, the world’s biggest windscreen repair company, is in talks with lenders to raise €8.1bn through new bonds and loans.
It plans to use the cash to pay a €4.4bn dividend to an investment group that includes the private equity firms, asset manager and Singaporean sovereign wealth fund, according to people briefed on the matter.
Belron, which owns the Safelite brand in the US and Autoglass in the UK, is half owned by listed Belgian conglomerate D’Ieteren Group.
The distribution is the largest recent debt-funded dividend payout attempted by a private equity firm, surpassing payouts made to buyout firms by office supply store Staples, European home security giant Verisure and railroad Genesee & Wyoming, according to PitchBook LCD data.
It comes at a time when buyout groups have struggled to return cash to their investors, as a sluggish pace of mergers and acquisitions and lacklustre flotation prospects limit their ability to exit investments.
The consultancy Bain & Co estimates private equity is invested in a record 28,000 businesses worth more than $3tn, and holding those companies for longer than they would like.
Debt-funded dividends have a mixed reputation on Wall Street.
Companies that borrow the debt must dedicate a larger portion of their cash flows to interest payments, raising the possibility they will ultimately default on their obligations. Analysts at credit rating agencies Moody’s and S&P Global downgraded Belron deep into junk territory this week.
But companies with the financial wherewithal to finance dividends to their owners are often performing strongly and seen by creditors as being profitable enough to cover their interest bills and quickly deleverage.
Data on so-called dividend recaps is limited because most data providers track the size of the loans or bonds being issued — not the portion of those capital raises ultimately used to fund a dividend.
In many instances, including with Belron, a large portion of the debt is used to refinance existing obligations.
One person involved in the Belron loan offering said it was the largest such transaction they could find in their records dating back more than a decade.
The dividend will nearly double Belron’s overall debt from less than €5bn to almost €9bn. The ratio of its debt to ebitda will jump to about 5.8 at the end of the year from 3.3 in 2023, according to S&P.
The billions of euros expected to be paid to Belron’s owners will generate large early returns for a closely watched transaction struck at the apex of a dealmaking boom in 2021 when private equity firms were paying high prices to buy businesses.
CD&R bought a 40 per cent stake in Belron from D’Ieteren at an €3bn valuation in 2018, but cashed out of its initial investment in a complex 2021 deal that valued the windshield repair company at a staggering €21bn, seven times what it had paid three years earlier, as operating profits surged.
But CD&R was keen to maintain an investment in the business, and it created a special fund known as a continuation vehicle to buy part of Belron from its flagship private equity vehicle.
CD&R Value Building Partners, the new fund, bought a stake of more than 20 per cent stake in Belron, while H&F, GIC and BlackRock collectively bought a stake of more than 15 per cent which helped to validate the valuation.
If the dividend-deal is completed, investors backing the company in the 2021 deal will have had 35 per cent of their original capital returned through dividends, according to two sources briefed on the matter, without having sold down any of their investment.
Those returns would make Belron an outlier from among a record wave of private equity deals struck in 2021 where little capital has been returned.
CD&R, D’Ieteren Group, BlackRock, Belron and GIC all declined to comment.
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