A few weeks ago, Dunkin’ Brands disclosed it was in the market to raise $2 billion– via a $1.35 billion loan and $625 million in notes– to fund a dividend to its PE backers. However, they didn’t specify how much it would be. Moody’s Investors Service kindly provided that information. Bain, Carlyle and Thomas H. Lee will be getting $500 million, or about one-fourth of the total Dunkin’ is raising, according to a Nov. 11 report.
Bain appears to chugging in the dividends. I reported yesterday that the Boston PE firm will receive about $300 million via a dividend from Burlington Coat Factory. Bain is also part of the group that will be getting a $2 billion payout from HCA (the same PE firms also received $2.25 billion from HCA earlier in the year).
While I’m not criticizing Bain, I was speaking to a placement agent yesterday who wondered how LPs are affected by all these dividend recaps. LPs, the source said, are already not very excited about domestic funds. The LPs may not “want to reinvest in funds if [dividend recaps] are all they’re doing,” the source says.
But one PE exec thinks that’s not true. “Why would an investor object to receiving a return on their money while reducing their capital at risk?” the PE exec says. “If they receive a dividend on their IBM stock where IBM borrowed to make the payment do they make the same comment?”
Another buyout source says LPs will be OK with recaps as long as “they’re reasonable in light of the economic conditions.” Imprudent recaps that are irresponsible will be rejected by LPs and the market (think SK Capital’s failed $1 billion dividend from portfolio company Ascend Material). Modest recaps that put modest, incremental leverage on a company are acceptable, the buyout exec says.
And sometimes a dividend recap is all that private equity firms have available to them to return liquidity to LPs, the source says. “Yes, selling the business is the best but sometimes you can’t sell or go IPO,” the person says.