Private equity shops in Europe have been taking advantage of a recent lull in traditional M&A activity to pay themselves dividends via the leveraged finance market.

There were five leveraged loan or high-yield bond issuances in November backing dividends to private equity firms, totaling €2.24 billion, according to LCD. This pop in dividend debt comes amid a dearth of fourth-quarter M&A activity, allowing private equity sponsors to hit the market with these opportunistic transactions.

There was less room for dividend-related issuance for much of the year, as M&A dominated the leveraged finance new-issue market.

"We've just had a six-week period with no M&A, and it's been the first real opportunistic window we've seen this year," said one market participant. "When the window is there, why would private equity turn down the chance to return money to shareholders and protect its returns?"

But while there was a small increase in dividend recap supply in November, the dominance of M&A activity over much of 2018 means the volume of opportunistic recaps seen so far this year has fallen well behind some previous years.

The leveraged loan market has hosted about €5.87 billion of dividend activity year-to-date through Nov. 27, while the high-yield bond market has taken €1.41 billion, for a total of €7.28 billion, according to LCD. While this is higher than the totals recorded in 2015 and 2016 — at €3.67 billion and €5.61 billion, respectively — it is well behind the record-breaking volume racked up in 2017, when the market was dominated by opportunistic activity.

The dividend recaps seen so far in 2018 have resulted in some €2.64 billion being returned to shareholders via leveraged loan or high-yield bond issuance, below the average of €4.5 billion for the 2006 to 2017 period. By contrast, in 2017, about €8.15 billion was returned to shareholders from the proceeds of deals in the bond and loan markets, according to LCD.

LCD News is an offering of S&P Global Market Intelligence.