Aramark issues debt to pay for shareholders' dividends

Aramark Corp., a privately held Philadelphia food service provider and facilities manager, said Monday that it would borrow money to pay a $712 million dividend to its shareholders.

The company's shareholders include private equity firms GS Capital Partners, Thomas H. Lee Partners, and Warburg Pincus L.L.C., which in aggregate own more than 60 percent of the company.

In addition, longtime chief executive Joseph Neubauer owns 9.54 percent of the company, which was taken private in January 2007 for $8.3 billion, including equity and assumed debt.

Going into debt to pay a dividend is a maneuver used by private equity companies to get money out of a business without selling it or taking it public in a weak market for new stock offerings. The cash will come from the sale of $600 million in five-year senior notes and from tapping an expanded revolving credit facility.

Standard & Poor's Ratings Services changed its credit outlook on Aramark on Monday from stable to negative because of the company's "more aggressive financial policy" reflected in the decision to go further into debt to pay a dividend. The company's debt was already considered high-yield, or relatively risky, compared with companies that have less debt relative to their earnings. Two other major ratings services, Fitch and Moody's, kept their outlooks stable for Aramark, which already had $5.7 billion in long-term debt as of Dec. 31.

The proposed unsecured senior notes are a type that were popular during the leveraged-buyout boom from 2005 to 2007. The notes allow the borrower - in this case, Aramark - the option of paying interest in the form of additional debt.

Aramark, which had $12.6 billion in revenue in its most recent fiscal year, joins private-equity-owned CKE Holdings Inc. and Bumble Bee Foods L.L.C. in selling these so-called payment-in-kind toggle notes this year, according to Bloomberg News.

Aramark has 254,000 employees in 22 countries. Food and support services for hospitals, colleges, businesses, and sport stadiums such as Citizens Bank Park accounted for 88 percent of Aramark's revenue and 81 percent of its profit in fiscal 2010. The remainder came from uniform and apparel services.