Dividend Recap Market Environment
Number of Dividend Recapitalizations1
Following the slowdown post-pandemic, the dividend recapitalization activity has increased as sponsors pursue alternative liquidity solutions and refinancings.
What Does the Current Environment for Dividend Recaps Look Like Compared to the last several years?2
Although all-in yields remain elevated, lower spreads have made refinancing an attractive option for some borrowers.
U.S. Private Capital Markets Dry Powder Continues to Grow3
Direct Lending ($B)
In addition to improved pricing, availability of capital in the private credit markets has increased competition among lenders and put downward pressure on spreads.
Unitranche Spreads by Size4
Pricing spreads have generally trended downward across all borrower sizes, as illustrated by Lincoln’s reported unitranche loan pricing.
North American Private Equity DPI by Fund Vintage5
DPI for 2019 – 2021 vintage funds has lagged earlier vintages, which has increased demand for partial exits and alternative liquidity solutions.
Dividend Recaps Overview
Why should a sponsor or board consider a dividend recap?
- If current leverage level is below “market,” including situations where a sponsor over-equitized the initial purchase due to lower leverage availability
- If a company is generating strong free cash flow and has the ability to service a higher level of debt while maintaining appropriate fixed-charge coverage
- As an avenue to provide liquidity to shareholders in an M&A environment where a full sale is not optimal
- For a simultaneous balance sheet recapitalization and continuation vehicle transaction
- To allow owners to take “chips off the table” and de-risk fund returns today while preserving upside returns through a future M&A exit
- As a potential alternative to a full sale or initial public offering (IPO) in the event the board / management believes appropriate value has not been achieved through the sale / IPO process
Risks
In the event the borrower becomes distressed or insolvent in the future, creditors may allege the dividend was a fraudulent conveyance.
- Directors: Could face significant personal liability
- Shareholders: Could be forced to return dividend proceeds and / or incur costly litigation
- Secured Lenders: Secured claims may need to settle for significant discounts, despite previously negotiated collateral
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“Our clients obtain solvency opinions for many reasons, but the personal liability that members of the board of directors could face is often the leading one.”
Chris Gregory, Managing Director in Lincoln’s Valuations & Opinions Group who leads fairness and solvency opinions |
The Lincoln Difference
Lincoln’s dedicated Transaction Opinion & Board Advisory practice specializes in providing highly defensible fairness and solvency opinions and strategic financial advice to boards, special committees and other decision makers. Being housed in a global investment bank with highly active Mergers & Acquisitions and Capital Advisory Groups, we bring deep product and industry expertise and real-world experience to each of our transaction opinion engagements. Please let us know if we can help you navigate a dividend recapitalization transaction.
Sources:
- PitchBook | LCD Comps based on reported Recap/Dividend transactions
- PitchBook | LCD Comps, Lincoln International
- in chart: Reflects syndicated market pricing
- in chart: Illustrative example based on 50% LTV
- PitchBook
- Lincoln VOG Proprietary Private Market Database and Private Credit Snapshot; represents midpoint
- Preqin as of 9/30/2025; Year 0 (Y0) represents the first non-zero DPI; changes in cumulative DPI also reflects differences in the availability of data across reporting periods
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