Reporter's Notebook: Blackstone looks to recoup on Apria deal

Thursday, April 8, 2010

YARMOUTH, Maine - Do you know what a "dividend recapitalization" is?

This issue comes up because recently I ran into news stories involving two industry companies: Apria Healthcare and Attends Healthcare, a maker of adult incontinence items. Apria, pending shareholders approval, has arranged a $500 million "dividend recap" and Attends $98 million.

Here's what Investopedia, an online investing dictionary, has to say about dividend recaps:

What Does Dividend Recapitalization Mean? When a company incurs a new debt in order to pay a special dividend to private investors or shareholders. This usually involves a company owned by a private investment firm, which can authorize a dividend recapitalization as an alternative to selling its equity stake in the company.

Investopedia explains Dividend Recapitalization: The dividend recap has seen explosive growth, primarily as an avenue for private investment firms to recoup some or all of the money they used to purchase their stake in a business. It is generally not looked upon favorably by creditors or common shareholders because it reduces the credit quality of the company while only benefiting a select few.

Here's another perspective that I pulled from a Dow Jones story:

Under this procedure, a buyout firm's portfolio company takes on additional debt, which it then uses to pay its buyout sponsor a dividend. That allows the buyout firm to take some of the risk of its equity investment off the table, while still owning the company-a win-win situation if there ever was one.

If Apria's $500 million dividend recap goes through, the Blackstone Group, which bought the company in 2008 for $1.6 billion, will recoup much of its $673 equity investment.

The Attends $98 million dividend recapitalization includes a $20 million asset-based revolving credit line, and $78 million in loans. The money will be used to refinance existing debt and fund a $60 million distribution to shareholders like private-equity group KPS Capital Partners.

So with a dividend recap, if I'm Blackstone or KPS, I'm saying to myself: What's not to like? I get a good chunk of my equity investment back, but still get to own the company. I bet Blackstone and KPS take the money from their dividend recaps, invest it somewhere else, and make even more money.

To which I say: Nice work if you can get it.