Petco Backers, with Leonard Green & TPG, to Get $603M Dividend

Petco Holdings is paying out another dividend to its shareholders, which include Leonard Green & Partners and TPG.

San Diego-based Petco is raising $550 million in secured PIK notes, according to an Oct. 4 report from Standard & Poor’s. Petco plans to use the proceeds, plus roughly $75 million in cash, to pay out a roughly $603 million dividend to shareholders, S&P says.

Petco Holdings is the parent of Petco Animal Supplies. In 2006, Leonard Green and TPG acquired Petco, for the second time, in a $1.68 billion deal. The transaction included $774 million in equity, Thomson Reuters Loan Pricing Corp. has reported.

Petco is the second largest specialty pet good retailer after PetSmart. The company sells pet food and supplies through more than 1,150 stores spread across the U.S. Petco operates in a very fragmented industry and the company is highly leveraged, S&P says. The retailer’s total debt to EBITDA increases to 7.2x at July 28, 2012, from 6.1x before, S&P says.

“Although the proposed debt-financed dividend leads to a moderate deterioration of credit profile for Petco, our anticipation of good profitability gains provides cushion that supports the increased debt leverage,” said Mariola Borysiak, an S&P credit analyst.

This is the second time Petco is paying out a dividend. In 2010, Petco issued about $1.7 billion in loans to pay a dividend of up to $700 million to Green and TPG, S&P Leveraged Commentary & Data said at the time.

Officials for Petco, Green and TPG couldn’t be reached for comment.

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