Pete Stavros, Co-Head of Global Private Equity at KKR, which did a $565 million dividend recap this year. (PATRICK FALLON / Getty Images)

Private equity is loading up companies with debt to juice dividends and delay their pain

Needing to make distributions to investors, PE firms have turned to one of their favorite tools: dividend recaps.

Jack Raines

8/20/24 3:27PM

I have written, a few times now, about private equity’s cash flow problem: namely, PE as an industry is now raising more funding than they are distributing back to investors, so a lot of investor capital is tied up in portfolio companies that funds haven’t been able to sell.

The life cycle of a typical PE fund might be 10-12 years, in which capital is invested over the first half of the fund’s life, and investments are sold to return capital to limited partners over the second half. However, when funds find themselves unable to exit those positions, they have a problem: where do they get the money to pay investors?

The answer: junk bonds.

PE funds use a practice known as a “dividend recapitalization” to raise new debt in order to pay their investors a cash dividend (one example is 1-800 Contacts, a KKR portfolio company, taking out a $565 million loan earlier this year), and, according to The Wall Street Journal, dividend recaps through early August 2024 have hit $43 billion, up from $7.4 billion in the same period last year.

Dividend recaps aren’t new, and the use of leveraged loans to distribute cash to investors exploded in 2020 and 2021 (according to the Journal piece, this year’s dividend recap payouts still lag behind 2021). However, in 2020 and 2021, debt was much cheaper as the Fed funds rate was close to 0%. With benchmark interest rates now sitting at 5%, the loans funding dividend recaps are more expensive to service, pressuring the portfolio companies. Additionally, despite the recent uptick in dividend recaps, capital is still being distributed to investors at an anemic rate of around 12%, down from 31.3% in 2021.

Personally, I don’t think this practice bodes well for private equity. As noted in my venture capital piece, “down rounds” are growing more popular in the venture space as startups can no longer justify their 2021 valuations, and, if they want to raise more capital, they’re going to have to take a haircut on their valuations. The same dynamic is in play in the more liquid stock market: you have to transact at market price, even if that price is below what you perceive to be the fair value.

Private equity valuations, however, tend to be subjective, and funds don’t want to mark down the value of their investments. Dividend recaps allow funds to maintain current valuations and avoid taking losses, but they’re just kicking the can down the road. Sooner or later, they will need to exit their positions, and when you do have to sell, your investment is only worth what someone else will pay for it. Loading that investment with pricey debt doesn’t make it a more attractive asset.

Max Knoblauch24h

The Trump administration is reportedly planning a 50% made-in-America requirement for USMCA tariff relief

Qualifying for USMCA-related lower tariffs may soon require more US-made vehicle components, according to reporting by The Wall Street Journal.

The Trump administration is reportedly planning to introduce a 50% US content requirement for vehicles covered by the trade pact to receive lower tariffs. The content would be measured by cost, according to the WSJ.

There currently isn’t any US-specific requirement for those lower tariff rates, but in order to receive preferential tariffs, vehicles are must contain at least 75% regional content (components made in North America). Per Reuters reporting, the Trump admin is seeking to raise the regional requirement to 82%.

These reported plans are subject to change as the US negotiates USMCA terms with Mexico over the next few months.

Overall, Tesla will likely have the easiest time qualifying for any stricter requirements. The automaker’s vehicles contained the highest amount of US/Canadian content in 2025, according to American University research. Ford, GM, and Stellantis all scored lower.

Notably: the underlying government data that many domestic content measurements rely on intentionally combines US and Canadian components, so it’s difficult to know exactly how much of any given vehicle is specifically US-made.

Exclusive | Trump Administration Wants Autos Under USMCA to Be at Least 50% Made in America

These reported plans are subject to change as the US negotiates USMCA terms with Mexico over the next few months.

Tom Jones5/29/26

The $640,000 Luce makes the average Ferrari look like a bargain

Put aside the shape; put aside the smoothing out of Ferrari’s iconic sharp edges; put aside, even, the calls from former Chairman and President Luca Cordero di Montezemolo to “take the Prancing Horse off.” On the grounds of price alone, Luce detractors might have a point.

By now, many of us will have read the criticisms of Ferrari’s first fully electric vehicle, as the Luce — which was unveiled to the world earlier this week and promptly saw the company’s shares crash out in New York and Milan — gets subtly shaded by competitors online and not-so-subtly shaded by basically everyone else.

What makes all of this worse for Ferrari is that, even by the luxury car maker’s notoriously high standards, they’ve slapped a pretty hefty price tag on the Luce, and the company’s CEO, Benedetto Vigna, has already been forced to defend the €550,000 ($640,000) price point, saying yesterday that it’s “fair to pay for innovation,” per Reuters.

While Ferrari’s cars have been getting more expensive of late, as recently as 2022, Ferrari’s average revenue per car sold was around $340,000. At nearly twice that price, this new electric model is obviously proving a little much (visually, conceptually, and financially) for many loyal and long-standing fans of the Prancing Horse to stomach.