Private equity firms have €41bn of borrowing headroom for dividend recaps, Moody’s says

Private equity firms in Europe, the Middle East, and Africa have €41 billion in borrowing headroom for dividend recaps, according to a Moody's report. This headroom allows companies to take on additional debt before risking credit rating downgrades. The report cites recent transactions, such as Spanish fuel retailer Plenergy and health supplement manufacturer Sunday Natural, which raised leveraged loans and financing packages to fund shareholder payouts.

Moody's attributes the lack of widespread credit rating downgrades to the concentration of deals among companies with strong operating performance and sufficient cash flow to service additional borrowing. While private equity firms face pressure to return capital to investors, Moody's expects dividend recaps to remain an attractive liquidity option for cash-generative businesses with limited reinvestment opportunities, particularly those beyond the traditional four-to-five-year investment period.

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