Dividend Recap
Private Credit glossary · Market, Sourcing & Sponsor Dynamics
Definition
Refinancing a portfolio company's debt — typically by incurring additional senior or unitranche debt — to fund a one-time distribution to the sponsor and LPs without a sale or IPO. Effects: re-leverages the company (often back to original LBO leverage), accelerates DPI/IRR for the PE fund, and increases credit risk to existing lenders (which is why dividend recaps usually require lender consent under restricted-payment covenants and a builder-basket test).
Dividend Recap in plain English
A dividend recap is when a company that's already owned by investors borrows a fresh pile of money — not to grow or build anything, but just to hand that cash straight back to its owners as a one-time payout. It's like taking out a new mortgage on a house you already own so you can pocket the cash today, without selling the house. The owners get paid early (which boosts their reported returns), but the company is now carrying more debt, which makes it riskier for the lenders who were already owed money. That's why existing lenders usually have to give permission first — their loan contracts include rules ("restricted-payment covenants") that block a company from shoveling out cash it borrowed unless certain safety tests are met.
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