PE-Owned Companies Ramp Up Borrowing for Distributions
US private equity-backed companies raised approximately $94 billion in leveraged loans and high-yield bonds last year to finance payouts to their sponsors, as reported by Bloomberg citing Moody’s Ratings analysis. This borrowing occurred through dividend recapitalisations, which have increased due to constrained exit opportunities from economic uncertainty and a slower IPO and acquisition market. These recapitalisations allow debt to be added for distributions, though they heighten financial risk for the businesses without improving earnings, according to the analysis.
Growth in Recapitalisation Activity
In 2025, roughly $50 billion of recapitalisation proceeds—representing 53% of total deal volume—was distributed to private equity owners, up from $33 billion, or 34%, in 2024, according to Private Equity Wire. The combined recap activity for 2024 and 2025 reached nearly $200 billion, more than five times the level seen in the prior two years. The remainder of the 2025 proceeds went toward debt refinancing and other corporate uses, highlighting a shift toward using borrowed funds primarily for sponsor payouts rather than business growth.
Sector Focus in Large Deals
Software, business services, and IT sectors have dominated large recap deals over the past five years, particularly those exceeding $1 billion, as noted in the Moody’s analysis. This trend indicates that private equity sponsors are prioritizing distributions to investors over maintaining long-term credit health, especially during periods of challenging exits. As widely known in private equity, such sector concentrations can amplify risks in volatile markets, though this borrowing spree reflects broader industry pressures to return capital to limited partners.
Potential for Increased Scrutiny
Moody’s highlighted that ongoing market disruptions, including the impact of artificial intelligence, may lead investors to scrutinize recapitalisation strategies more closely in 2026, according to Private Equity Wire. This follows a pattern where credit markets remain accessible, but the negative effects on credit profiles could prompt greater oversight from lenders and investors.
