Dividend recaps got an ugly name during the private equity boom, as the public became more and more aware that buyout firms were quickly adding extra debt and pulling cash from companies they were supposed to be fixing.  Less than a year after CD&R, Carlyle and Merrill bought Hertz, for example, they paid themselves a whopping $1 billion dividend.

As to which firms employed this device more than others, Moody’s has a report on the matter.

Moody’s reviewed 220 transactions rated by its Corporate Finance Group since 2002, and found that large private equity firms took dividends in over 45 percent of the deals rated before September 2006, with nearly 30 percent taking dividends big enough to remove all or almost all the equity contributed to the initial deal. In 10 percent of the deals, Moody’s says sponsors drew a big dividend within the first year of the initial rating. The study excluded deals where ratings were reversed within 2 years.

So who were the avid recappers during the buyout boom? According to Moody’s, six firms were particularly aggressive, taking dividends in 50 percent or more of their deals: Welsh Carson, Cerberus, Providence Equity Partners, Carlyle, Madison Dearborn and TH Lee. KKR, Goldman Sachs and Bain Capital, took dividends in one-third of their deals.  

The basic function of a dividend recap, or leveraged recap as they’re also known, is to borrow more money after a leveraged buyout to pay cash to the investors. As PEHub’s Dan Primack puts it here, “critics (like me) assailed the practice as short-term greed, and claimed it was rampant. Industry insiders called us ignorant alarmists, adding that it was rare, safe and legal.”

In more than one-third of their deals, TH Lee and Apollo took dividends within the first year, Moody’s said. Goldman Sachs, TPG Capital, Cerberus, and Warburg Pincus did so once.

But fear not, recap critics. The credit crunch has made recaps tough, and quick ones nearly impossible.