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Last week FT Alphaville predicted that hot credit markets and investor desperation for some cash returns would cause the already record-breaking volume of “dividend recaps” to boom even harder.

But we didn’t know how quickly this would come true. On Monday the D’Ieteren Group in Belgium announced that its subsidiary Belron — a global car windscreen repair company jointly owned with a bunch of private equity firms — was borrowing €6.25bn in seven-year dollar and euro loans,

This is part of a broader €8.1bn borrowing spree that, combined with some of its own cash, will finance a €4.3bn special dividend to its owners. Trebles all round!

A morning note from PitchBook LCD informs us that this week’s loan represents the largest recapitalisation for dividend purposes on record, both for private-equity backed borrowers and overall.

Indeed, at nearly $7bn, this comfortably breaks the previous $6.35bn dividend recap record set in 2021 by Hellman & Friedman with Sweden’s Verisure, and Sycamore Partners’ frankly puny $5.3bn dividend recap of Staples back in 2019 (it seems there’s at least one financial arena where Europe beats the US).

In the email, Marina Lukatsky, global head of credit research at PitchBook LCD, said:

Against the backdrop of a still-challenging exit environment, private equity firms are holding on to their portfolio companies for longer. With borrowing spreads near multi-year lows in the broadly syndicated loan market and sustained investor demand for loans, dividend recap issuance has reached record pace, with roughly $61 billion issued year-to-date.

This isn’t the first dividend recap by Belron either — it borrowed €2.2bn to help remit €1.5bn to its shareholders back in 2021. Later that year CD&R sold its some of its 40 per cent stake to Hellman & Friedman, GIC and BlackRock Private Equity Partners at a valuation of €22bn.

So what does this mean for Belron, which owns Autoglass among other brands? Well, with leverage equal to nearly six times its earnings, almost double where it was in 2023.

As a result, both S&P and Fitch downgraded the company this week, to BB- and BB respectively, with the latter noting that the dividend recap “effectively doubles the company’s existing debt, significantly affecting its leverage metrics”.

While Fitch stressed that Belron’s “robust” cash flow generation means that it should be able to handle the extra interest payments, this leaves the company in “junk” territory. As the paper FT Alphaville wrote up last week concluded:

[Dividend recaps] induced by cheap credit make firms riskier, with higher bankruptcy and failure rates, but also more IPOs and revenue growth. DRs increase deal returns but reduce wages, pre-existing loan prices, and fund returns (possibly reflecting moral hazard via new fundraising), pointing to negative implications for employees, preexisting creditors, and investors.