ConvaTec Sets $779M Dividend For Sponsors

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  • Nordic Capital, Avista Capital Partners back the company
  • Firms bought company five years ago for $4.1 billion
  • Low rates give firms room to add leverage

ConvaTec announced in August that it is selling $800 million in Senior PIK/Toggle notes in a private placement. The company said it plans to use proceeds to fund a roughly $779 million cash dividend to shareholders, according to a statement.

The sale comes five years after Bristol-Myers Squibb sold ConvaTec for $4.1 billion to Nordic Capital and Avista Capital Partners. The firms committed in August 2008 to invest $2.2 billion equity as part of the deal, according to SEC filings. It’s not clear if ConvaTec has paid out other dividends. Company officials couldn’t be reached for comment.

Skillman, New Jersey-based ConvaTec develops and makes products for ostomy management, advanced chronic and acute wound care and incontinence care. The company generates $1.65 billion in revenues and $494 million EBITDA, according to Moody’s Investors Service. ConvaTec employs 8,000 people globally.

The $800 million note issuance caused Moody’s to change its outlook on ConvaTec’s B2 corporate family rating to negative from stable. The new debt will cause ConvaTec’s leverage to jump to 7.8x EBITDA from around 6.2x at the end of March, Moody’s said an Aug. 5 note.

“The negative rating outlook reflects the relative weak positioning of the current B2 rating in the short term due to the company’s high leverage and lack of track record of the sustainability of current and forecast trading levels,” Moody’s said in the note. “The outlook also reflects the aggressive financial policies of ConvaTec’s shareholders, which has resulted in repeated releveraging of the business over recent years, either via acquisitions or as currently proposed via a significant dividend payment.”

ConvaTec is the latest sponsor-backed company to pay out a dividend, as low interest rates have given firms room to add back leverage to portfolio companies. In July, Michaels Stores said it plans to issue an $800 million dividend to its shareholders, which include Bain Capital and The Blackstone Group. Party City, which was sold to Thomas H. Lee Partners for $2.69 billion a year ago, is also paying out a $291 million distribution to its shareholders, including THL and Advent International.

Executives at Nordic and Avista did not respond by deadline to requests for comment.

Luisa Beltran is a senior writer for peHUB.