Booz Allen Ranks Among Year’s Five Top Recaps

  • Consulting firm set payout in August
  • Clear Channel Outdoor, HCA lead list
  • M&A, IPO markets are difficult

Booz Allen Hamilton’s $1 billion distribution isn’t the biggest dividend to be paid out by a private equity-backed company this year, a tally by sister Web site peHub finds. In fact, Booz Allen’s $1 billion payout looks a little paltry compared with others.

The government consulting firm is just one of many buyout-backed companies issuing dividends this year, and many are going to the sponsors. Moody’s Investors Service estimates there have been at least 35 debt-financed dividend recaps through the first six months of this year. These transactions were worth more than $11 billion at companies controlled by buyout firms, Moody’s said.

While popular with private equity, these distributions are controversial. Presidential contender Mitt Romney has been criticized because his former firm, Bain Capital, extracted dividends from companies that later went into Chapter 11.

Why so many dividends? With M&A so slow and the IPO market in seeming stasis, private equity has lacked exit opportunities this year. Credit markets, however, were strong earlier in 2012.

Buyout executives say dividend distributions are a valuable way to get money back to LPs. Also, many firms think their companies are under-levered and now there is room to boost debt, Moody’s said in a recent report. Some firms, like KPS Capital Partners, even publicize all the dividend recaps they’ve done recently.

So here are the top five dividends so far this year, according to S&P Capital IQ Leveraged Commentary & Data.

The biggest dividend this year comes from Clear Channel Outdoor Holdings. Clear Channel Outdoor increased a $1.2 billion note offering to $2.2 billion in March. It used the proceeds to pay a “special cash dividend” of nearly $2.2 billion to shareholder Clear Channel Communications.

Thomas H. Lee Partners and Bain Capital own 89 percent of Clear Channel Communications, while public shareholders have 11 percent. However, the firms didn’t get any of the dividend and Clear Channel used its proceeds to pay down debt.

Clear Channel is highly leveraged with $20.7 billion in long-term debt. Much of that came from Lee and Bain’s $26.7 billion buy of the company in 2007. That deal included $4 billion in equity. About $2.46 billion came from the firms and another $1.5 billion came from the  banks, according to the Wall Street Journal and SEC filings from that time.

The second largest dividend came from HCA, the hospital operator. Earlier this year, HCA paid out a $1 billion special dividend to shareholders. That’s on top of three other dividends in 2010 where HCA paid its shareholders $4.35 billion. This includes a distribution of $1.75 billion in January 2010, another $500 million in May and about $2.1 billion in November.

HCA was acquired in November 2006 for about $33 billion by an investor group comprising Bain Capital, Kohlberg Kravis Roberts & Co., Merrill Lynch Global Private Equity (now BAML Capital Partners), and affiliates of HCA founder Dr. Thomas Frist. The buyers invested $5.3 billion equity in the deal, according to SEC filings.

Booz Allen Hamilton ranked third in our tally. The government consulting firm said this month that it will be paying out a special dividend of $1 billion to shareholders later in August. In July, Booz Allen said it was considering restructuring $959 million in debt into a new credit facility of up to $1.75 billion. Proceeds of the loan, along with $260 million in cash, would be used to pay the mammoth dividend.

The Carlyle Group currently owns about 74 percent of Booz Allen’s publicly traded stock and about two-thirds of total voting equity, a company spokesman said. With the $1 billion dividend and the two other payouts in 2009, Carlyle will likely more than make back its investment.

Landing in fourth place is Pilot Travel Centers, which launched a $1.1 billion loan in July. Pilot plans to use the proceeds to back its acquisition of Maxum Petroleum and pay a $700 million dividend to shareholders.

CVC Capital Partners currently owns about 18.5 percent of Pilot Travel and expects to receive about $130 million from the payout, according to The Deal. The rest of the dividend will likely go to the family of Pilot founder James Arthur “Jim” Haslam II, who started the business in the late 1950s, the story said. The Deal estimates that CVC has so far received more than $960 million from Pilot Travel. CVC invested $640 million in Pilot Travel, a gas station and truck stop operator, six years ago.

Attachmate was in the market earlier this year for a $1.5 billion recap loan. Proceeds were to pay a $580 million dividend to Attachmate’s sponsors, according to Three buyout firms—Francisco Partners, Golden Gate Capital and Thoma Bravo—own Attachmate.