According to Bloomberg Business, the shareholders of Japanese personal care company FineToday Holdings are getting a payout funded by a $350 million private credit loan. Goldman Sachs Asset Management provided the five-year loan to a special purpose vehicle set up for the deal. The proceeds will be distributed directly to FineToday’s owners and could also help fund future acquisitions. This transaction is part of a growing trend of dividend recapitalizations being financed by private credit lenders instead of traditional banks.
How the Deal Works
So, what’s actually happening here? Basically, FineToday is taking on new debt not to grow the business in an obvious way, but to send cash to its shareholders. It’s called a dividend recapitalization, or a “dividend recap.” The company, or a special vehicle created for this purpose, borrows money. Then, instead of investing that capital into operations or R&D, it gets paid out as a dividend. It’s a way for private equity owners or other investors to realize a return without having to sell the company. And here’s the thing: using private credit for this is becoming the new normal. Banks have gotten stricter after past blowups, but private credit funds, flush with cash, are stepping in to fill the void. They’re willing to structure these bespoke, five-year loans for companies that might not want the public scrutiny of the bond market.
The Bigger Trend and Risks
This isn’t just a one-off. Look, private credit is absolutely booming, and these dividend recaps are a huge part of that activity. Funds have hundreds of billions to deploy, and sponsors are eager to pull cash out of their stable investments. But is it risky? You bet. The company—FineToday in this case—now has an extra $350 million in debt on its books. Its balance sheet is more leveraged. That means future cash flow has to service this new loan, which could limit its flexibility if the economy slows or the personal care sector hits a rough patch. It’s a trade-off: shareholders get liquidity now, but the company’s financial resilience for tomorrow takes a hit. For a stable business in a non-cyclical industry like personal care, lenders probably see it as a safe bet. But if every company starts doing this, you have to wonder where the debt saturation point is.
Why Private Credit Loves This
From Goldman‘s perspective, this is exactly the kind of deal their private credit arm wants. They get to lend to what’s likely a fairly stable business with predictable cash flows—things like shampoo and skincare sell in good times and bad. They negotiate the terms privately, avoiding the syndication headaches of a bank loan. And they presumably lock in a nice, juicy interest rate for their trouble. It’s a win for them and a win for the shareholders getting the check. But what about the long-term health of the underlying business? That’s the perennial question with recaps. The financial engineering is elegant, but it doesn’t make the company itself any better at making soap. In a way, it’s a vote of confidence in FineToday’s steady performance. The lenders are betting that the company’s operations are robust enough to handle the new debt burden for the next five years. We’ll see if that bet pays off.
