EMEA Private Equity Firms Have $46 Billion in Potential Debt Headroom

Private equity-owned companies in Europe, the Middle East and Africa have $46 billion in potential borrowing capacity for investor payouts as company sales and IPOs remain subdued.

The estimate reflects additional debt that companies could take on before leverage reaches levels typically associated with rating downgrades. It describes potential borrowing capacity, not a forecast that firms will borrow the full amount or distribute it to investors. EMEA firms are likely to keep using dividend recapitalizations while exits remain limited.

In the United States, dividend recap borrowing through broadly syndicated loans totaled $28.69 billion through Sept. 2, down 39% from $47.4 billion during the same period in 2025. Full-year U.S. recap volume reached $72.2 billion in 2025, the second-highest annual total recorded.

A dividend recapitalization lets a private equity owner receive cash without selling its stake. The portfolio company borrows money and pays a special dividend to its owner, leaving the company with more debt. Recaps can be financed through broadly syndicated loans, high-yield bonds or private credit.

Recent EMEA recaps have been concentrated among stronger-performing companies, with services, consumer products and manufacturing among the most active sectors. The added borrowing generally brings leverage back toward its initial level.

The additional debt can reduce a company’s flexibility to invest or withstand a downturn. A recap also leaves the private equity owner with the eventual need to sell or otherwise exit the investment.

Moody’s Ratings analyst Mayank Mallik said, “The fundamental problem is that exits are few and far between.” Companies preparing for an IPO often build a record of debt reduction for a couple of years before approaching the market.

Sunaina Sinha Haldea, global head of private capital advisory at Raymond James, said a recap can return cash to investors while the asset remains in the fund: “Investors get some cash back, but the asset remains in the fund.”