The level of cash extracted via dividend recaps in the European leveraged finance market is up almost three times in the first half of 2017 compared to the same period last year — and this fast pace appears to be quickening further as the second half begins. July has opened with a flurry of dividend recap activity, as six of the seven deals with bank meetings announced since the beginning of the month are to fund recaps.
There has been an expectation this type of volume would accelerate in 2017, with liquidity so strong in both the loan and bond market that sponsors would opportunistically take out dividends instead of exiting investments. Indeed, according to private equity data from S&P Global Market Intelligence, EMEA private equity portfolio company exits are down on a count basis to 505 exits as of May 29, from 657 in the same period in 2017.
One of the reasons there was an expectation recaps would rise in 2017 is that overall leverage levels have stayed so low in Europe. Total average leverage has remained at 5.1x for 2017 so far for sponsored deals, and has hovered close to 5x every year since 2014.
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