US private equity-backed companies raised approximately $94 billion in leveraged loans and high-yield bonds last year to finance payouts to their sponsors, according to a report by Bloomberg citing analysis by Moody’s Ratings.
These dividend recapitalisations have grown in popularity as exit opportunities remain constrained amid economic uncertainty and a slower IPO and acquisition market. While credit markets have remained accessible, adding debt for sponsor distributions increases financial risk for the underlying businesses without boosting earnings, which Moody’s notes is generally negative for credit profiles.
Across 2025, roughly $50bn of recapitalisation proceeds – 53% of total deal volume – was distributed to private equity owners, up from $33bn (34%) in 2024. The remainder was allocated to debt refinancing and other corporate uses. Combined, dividend recap activity for 2024 and 2025 neared $200bn, more than five times the level of the prior two years.
Software, business services, and IT sectors dominated large recap deals over the past five years, particularly those exceeding $1bn. Moody’s highlighted that this trend suggests sponsors are prioritising distributions to investors over long-term credit health, particularly when exits are challenging.
The report notes that ongoing market disruptions, including the impact of artificial intelligence, may lead investors to scrutinise these recapitalisation strategies more closely in 2026.
