Dividend Recap (Div Recap)
Private Equity glossary · Paper LBOs & Returns Math
Definition
A debt-funded special dividend mid-hold to sponsor equity, financed by issuing new debt at the portfolio company level. Mechanics: (1) sponsor engages debt capital markets to refinance existing debt; (2) new debt raised exceeds existing debt; (3) existing debt repaid; (4) residual (new debt - existing debt - transaction fees) distributed to equity; (5) company is left with higher leverage but typically within credit profile. Typically requires positive consent under the credit agreement (restricted-payments basket or amendment). Worked outcome: a 125M mid-hold dividend on 175M sponsor equity returns 71% of original investment at Year 3 — de-risking, not return-enhancing.
Dividend Recap (Div Recap) in plain English
A dividend recap is when the owners of a company (the 'sponsor,' the private-equity firm that bought it) pay themselves a big cash payout partway through owning it — funded not by profits but by making the company borrow a fresh, larger loan. The company uses the new loan to pay off its old loan, and whatever's left over after fees gets handed to the owners as a special dividend. It's like refinancing your house for more than you currently owe, using part of the new mortgage to clear the old one, and pocketing the difference in cash — you get money today, but now you owe more. For example, a $125M payout on a $175M original investment returns about 71% of the owners' money in Year 3, which mainly takes their own cash off the table (de-risking) rather than making the deal more profitable overall.
Also called: Div Recap
Learn these first
Related Private Equity terms
Private Equity practice questions · Private Equity flashcards · Private Equity study guide