Carlyle seeks payout with RAC debt deal - bankers

LONDON (Reuters) - Private equity firm Carlyle Group wants to pay itself a dividend from its UK roadside rescue business RAC a year after buying it, as the company's performance improves on the back of cost cuts, banking sources said on Tuesday.

Carlyle is in talks with a number of banks for the deal which would be done through a dividend recapitalisation - a process that sees more debt added to the existing borrowings and a dividend taken from it.

Dividend recapitalisations have been few and far between this year as bankers and loan investors worry about increasing a company's debt pile and taking money out of the business during difficult market conditions.

In July Permira pulled the plug on its plans to refinance the debt of its frozen food business Iglo and take a hefty dividend after some loan investors in the deal opposed the move.

Carlyle's attempts to take cash out of RAC could be done either by refinancing RAC's total debt and taking a payment with the extra proceeds raised or by adding on a new tranche of debt for the sole purpose of taking it as a dividend payment.

In June 2011 Carlyle agreed to acquire RAC, the UK's second largest roadside assistance business, for 1 billion pounds backed with 620 million pounds of debt. This gave the company a leverage of around 5.7 times its approximate 91 million pound earnings before interest, taxation, depreciation and amortisation (EBITDA), according to Thomson Reuters LPC data.

The company's EBITDA has since grown to around 113 million pounds and leverage as a consequence has fallen to around 3.5 times following cost cutting measures. If Carlyle can successfully pull off the dividend recapitalisation, leverage will be pushed to around 5 times its EBITDA, bankers said.

JP Morgan, BNP Paribas, Credit Suisse, Morgan Stanley and UBS were mandated lead arrangers on the buyout deal, joined by Credit Agricole, SMBC, Cooperative Bank and Barclays Bank, LPC data.

Some buyout firms have successfully taken dividends this year - including Alpha Private Equity taking a payout from European scrap metal refiner, recycler and trader Metallum and Ontario Teachers Pension Plan taking one from UK national lottery operator Camelot, bankers said.

(Editing by Jon Loades-Carter)