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Investors are betting on a bond that will give private equity giant Brookfield a massive $4.5 billion in dividends, overcoming concerns from some asset managers that President Donald Trump could negate tax cuts for bond issuers. A loan agreement was reached.
The deal is likely to be the largest dividend recapitalization the leveraged buyout group has ever completed, according to PitchBook LCD.
Clarios, the battery maker owned by Brookfield and Canadian pension fund CDPQ, indicated this week that financial institutions do not expect the next U.S. president to end subsidies under Joe Biden’s landmark anti-inflation law, with 50 Raised $1 billion. This is a measure that will put pressure on Clarios’ finances. At risk.
Clarios was a beneficiary of the IRA, which provides tax credits to companies that manufacture batteries in the United States. The company produces about a third of the world’s low-voltage car batteries and is expected to receive $1 billion in benefits in 2024, as well as significant tax savings over the next 10 years. , profits will increase and owners will receive large dividends.
But in a meeting with the banks selling the bonds, investors questioned the permanence of those tax breaks, according to people familiar with the call. Without IRA credits, the company’s leverage — a measure of debt compared to profitability — would be particularly high, they said.
“Even if you subtract credit, (the business) still works,” said one high-yield portfolio manager. “It still generates cash, but the leverage is very high.”
An investor presentation seen by the Financial Times shows leverage would rise to six times the company’s annual profits if the tax breaks were removed, and four times if the tax breaks remained in place. .
President Biden’s landmark climate change law includes $370 billion in subsidies, tax cuts and subsidies, making the United States one of the world’s most attractive countries for cleantech manufacturing.
President Trump, who takes office next week, has vowed to water down key parts of the IRA, creating uncertainty for clean tech investors and calling it the “green new scam.”
Analysts at ratings agency S&P Global warned that if Clarios loses its IRA tax break, it will significantly lower its credit rating into junk territory.
The $5 billion capital raise is a boon for Brookfield Fund investors, given that private equity firms have struggled over the past three years to exit investments and return cash to limited partners. Dew.
Brookfield investors, including CDPQ, will receive a total of $4.5 billion in dividends from Clarios, according to people briefed on the matter. This is approximately 1.6 times the initial stock investment of $2.9 billion when acquiring the company.
Clarios plans to use part of the proceeds from the bond issue to repay some loans that mature in 2026, according to investors familiar with the deal.
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Mr. Brookfield considered selling a minority stake in Clarios to a large investor such as a sovereign wealth fund, but the boom in the bond market meant he could sell billions of dollars in cash in dividends while retaining full ownership. We decided this was an attractive way to give back.
Demand for the bonds was so high that the bank increased the size of its capital raise by $500 million to $5 billion. Clarios secured a $3.5 billion loan at an interest rate of 2.75 percentage points, or approximately 7.05 percentage points, above the floating rate benchmark. It also raised $700 million in bonds and closed on a further €800 million in financing on Wednesday.
Brookfield declined to comment.
The new deal follows about $9 billion in dividends raised last year by Bellon, a windshield repair company backed by Clayton Dubilier & Rice, Hellman & Friedman, BlackRock and GIC.
Additional reporting by Amanda Chu
