Private Equity Piles On Debt to Pull Cash From Health Firms

Health-care companies are taking on more debt to pay dividends to their private equity owners, just a year after the start of a pandemic that plunged the industry into crisis.

At least five U.S. health-care firms have borrowed heavily in part to fund hundreds of millions of dollars of such payouts in the first quarter, according to a report to be released Wednesday by the nonprofit Private Equity Stakeholder Project.

The practice, known as dividend recapitalization, is gaining steam as investors hunt for yield with interest rates near historic lows. Meanwhile, health-care companies are on a stronger footing, with patient visits rebounding and the government unleashing unprecedented economic stimulus.

Health-care firms have already borrowed about $3.7 billion in 2021, partly to fund payments to private equity owners, more than double the amount issued all of last year, according to data from S&P Global Market Intelligence. At the current pace, it would be the industry’s most active year for borrowing since 2015.

“Investor demand for leveraged loans is outpacing supply so far this year, sending prices in the secondary market soaring,” said Marina Lukatsky, a senior director at S&P.