Dex Media, a high-profile $2.4 billion high-yield issuer, is being pitched a deal where the proceeds will be used to pay a dividend to private equity investors in the company. One banker says his firm is actively pursuing such a deal, called a dividend deal, with Dex and he assumes several others are as well. While so-called dividend deals are unusual under any circumstances, it would be particularly so in this case because it has been less than one year since Dex Media's equity sponsors, The Carlyle Group and Welsh, Carson, Anderson & Stowe, purchased the telephone directory business from Qwest Communications and renamed it Dex Media. A call to Bob Neumeister, Dex's cfo, was referred toPat Nichols, a spokeswoman for Dex Media, who says the company has "no definitive plans at this point to do another high-yield bond issue."
The precedent for doing a dividend deal so soon after an equity buyout may have been set last week when Houghton Mifflin came to market with a $265 million offering--$150 million of which will be used to reduce the $650 million invested by its three equity sponsors--Bain Capital Inc., Blackstone Group and Thomas H. Lee Partners. They bought Houghton Mifflin just over nine months ago.
Dividend deals can be seen by investors as a sign that the sponsors are getting cold feet, which may raise a red flag with the buy-side--either with regard to the prospective new deal, or to the company's outstanding issues. However, the fact that Houghton Mifflin, which is seen by at least one analyst as a weaker credit than Dex Media, got its deal done may bode well for Dex Media. Dex Media is seen as a logical candidate because it, like Houghton Mifflin, is a publishing company and its deals have performed well since issue. Two deals the company priced in August had come in some 200 basis points as of last Friday. "It wouldn't be surprising to see a company like Dex Media not only consider this kind of a structure, but have investors also be very happy to look at that kind of a deal," says Todd Morgan, analyst at CIBC World Markets.
Brooke Gambrell, a spokeswoman for the Carlyle Group, declined comment. A call toAnthony de Nicola, general partner at Welsh, Carson, Anderson & Stowe, was not returned.