Lenders Beware….Worth the Risk? Leveraged Dividend Recapitalizations

Learn how to structure leveraged dividend recapitalizations, in which a company incurs debt and uses those proceeds to pay a dividend to its shareholders or to repurchase its outstanding shares. This is a potentially risky transaction for the lender, the sponsor, and the portfolio company, in part because the company is taking on debt, but arguably not seeing any benefit from it.

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  Get a step-by-step guide for determining whether a dividend is permitted under an existing credit facility. This practice note shows you how to conduct that analysis and highlights what documents to review and what provisions to focus on.
• The Client Asks: Is a Dividend Recapitalization Permitted?
  Follow this guide for determining whether a dividend recapitalization is permitted under an existing credit facility. A prohibition or restriction under a credit agreement could impact the structure or timing of the transaction―or whether the borrower can pursue it at all.
• Limitation on Restricted Payments Negative Covenant Clauses (Credit Agreement)
  Start drafting with these clauses, which are used to prohibit the borrower and loan parties from making restricted payments that result in value leaving the loan group. The restricted payments covenant prohibits the borrower and its subsidiaries from distributing dividends and other distributions to equity holders.

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