(Bloomberg) -- KKR & Co. and other investors in Wella Corp. are set to extract one of the largest-ever dividend payments taken in Europe’s leveraged loan market.

The shareholders are in line for a $989 million-equivalent payment from the Geneva-based company, according to people familiar with the matter who weren’t authorized to speak publicly. This is the biggest dividend to be taken in the region since 2017, according to data compiled by Bloomberg. 

They’ll raise the cash by refinancing an existing $1.2 billion loan, raising the total amount to the equivalent of $1.8 billion in Europe’s leveraged loan market, in addition to gathering funds from other sources. That will releverage Wella’s credit to around 4.6 times earnings, from around 3 times after its previous financing.

The market isn’t typically in favor of dividend recapitalizations -- where borrowers refinance existing debt and pile on more for a shareholder payout -- preferring investors to keep equity in a credit and have skin in the game. The fact that the existing loan is rallying and price talk for the new debt has tightened are signs of the robust demand for loans. Unlike most corners of the credit world, loans have floating-rate structures, which are attractive when the prospects for interest-rate hikes are high.

The transaction also highlights the strength of KKR and its ability to attain favorable terms in Europe’s leveraged loan market. Spokespeople for KKR, Coty and Wella didn’t immediately respond to requests for comment.

Capital Structure

KKR bought a 60% stake in Coty’s Professional Beauty and Retail Hair Businesses, including the Wella, Clairol, OPI and ghd brands -- known collectively as Wella in May 2020. The private equity firm raised a $1.2 billion club loan after banks were unwilling to underwrite financing amid the economic shock triggered by the onset of the coronavirus.

Since then KKR has increased its stake in the business, which has performed increasingly well as pandemic restrictions ease. It’s now set to spin off the unit from Coty, which will retain a 25% stake in the company. And with the economic outlook brighter, Wella has tapped the syndicated leveraged loan market to access a vast institutional investor base, increase its debt and enable KKR and shareholders to reduce, but not altogether exit, their equity investment.


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