Private equity firms have sharply curtailed their use of a controversial debt financing manoeuvre to return cash to investors, after institutions raised concerns about how some groups have embraced new forms of leverage to compensate for a lack of deals.
So-called net asset value loans used to pay dividends fell by about 90 per cent during the second half of last year following heightened criticism from investors, according to 17 Capital, a New York based specialist lender that has pioneered the market.
Buyout firms have increasingly added an additional layer of leverage on top of their typical deal-linked borrowing, taking on debt secured against their fund investments, with some firms relying on those funds to pay dividends to investors.
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