Twinkie leverage, a tale of contemporary capitalism

[marmar]

(Bloomberg) After dismissing a sale and initial public offering, Hostess Brands LLC still wants to reward its private-equity owners. It’s opting to pay them by levering up instead.

Two years after Apollo Global Management LLC and Metropoulos & Co. acquired the maker of Twinkies from liquidation, Hostess is selling $1.23 billion of term loans. Of that, $905 million will be used to pay a dividend to its shareholders, according to Standard & Poor’s. That’s more than double what they paid for the business.

The deal is just the latest example of how record-low borrowing costs from the Federal Reserve are encouraging risky companies to add cheap debt -- sometimes to enrich private-equity firms -- as investors clamor for yield.

So-called dividend deals reached almost $16 billion in the second quarter, the most in a year, according to Bloomberg data. The downside of the loans is they can increase a borrower’s risk of default by piling on debt, without any of the cash going to improving operations or boosting revenues.

“Dividends aren’t designed to create value for the company,” Moody’s Investors Service analyst Brian Weddington said by phone. “This is a return of capital and profits to the founding investors.” ...............(more)

http://www.bloomberg.com/news/articles/2015-07-22/apollo-metropoulos-leverage-twinkies-for-dividends-in-loan-deal

[Demeter]

1. Daughter's class made "Minions" out of Twinkies

Company should get a clue and do a marketing tie-in.

[MisterP]

2. better than The Simpsons ...