DuPage Medical Group Among Healthcare Companies Taking on Debt to Pay Private Equity Owners
The practice, known as dividend recapitalization, is gaining momentum as investors seek yield with interest rates close to all-time lows. Meanwhile, healthcare businesses are on more solid footing, with patient visits rebounding and the government triggering an unprecedented economic stimulus.
Healthcare companies have already borrowed about $ 3.7 billion in 2021, in part to fund payments to private equity owners, more than double the amount issued last year, according to data from S&P Global Market Intelligence. At the current rate, this would be the industry’s busiest year for borrowing since 2015.
“Investor demand for leveraged loans has outstripped supply so far this year, causing prices to skyrocket in the secondary market,” said Marina Lukatsky, senior manager of S&P.
Dividend recapitalization is one of the reasons high net worth investors are drawn to private equity because they don’t have to wait years for a payout.
The leading private equity lobby group, the American Investment Council, defended practice, arguing that loans are made to financially strong companies and help retirees because public pension plans are among the clients of private equity funds. Dividend recapitalizations only made up 6% of the total leveraged loan market last year, the trade group said, citing data from S&P.
But critics, including the Private Equity Stakeholder Project, say the strategy destroys value.
“By forcing companies to go into debt to extract cash for themselves, private equity firms expose these firms to the risk of restructuring, bankruptcy or cost reduction to offset interest payments and repay this. debt, ”said Eileen O’Grady, coordinator of the nonprofit.