The Easter Bunny pays a visit to Apria and Attends Healthcare

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04/02/2010

Do you know what a "dividend recapitalization is?" I didn't but I do now, and if you read a little further, you will, too. It's interesting.

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

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.

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.
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.

So with a dividend recap, if I'm KPS or Blackstone, 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 wish I could have those eggs in my Easter basket.

Have a great weekend.

Mike Moran