But that doesn't prove that companies were borrowing recklessly to finance dividends, because in 2004 companies were sitting on massive hoards of cash, so the dividend payments may have been simply a way of returning that cash to shareholders (which is what economic theory says companies should do if they don't have better uses for it).
Bank-loan financed dividend recaps paid out a record $34.1 billion to private equity firms in the first nine months of this year, well above $25.5 billion for all of 2011, according to financial data tracker S&P Capital IQ.
2013 also saw sustained strength in the non-investment grade financing markets: Leveraged debt issuance (including both bonds and bank debt) was almost $1.5 trillion (as compared to 2012's then-record $991 billion), and issuers had great success, in particular, in refinancing existing debt and financing dividends.
It needs cash to finance its dividend as earnings drop and to pay for its recent $554 million purchase of the Centralia power plant in Washington.
High-yield bond investors bought $150 million of payment-in-kind toggle notes, which enable interest payments to be made with more debt instead of cash, so Madison Dearborn could finance a dividend on the back of BWAY Holding, a container maker.
Later, using the theory of dynamic coherent acceptability indices developed in (Bielecki et al. 2014b), Bielecki et al. (2013) propose a pricing framework, called dynamic conic finance, for dividend paying securities in discrete time.
The company financed the dividend payout by borrowing $700 million under a new unsecured loan as well as $100 million under its revolving credit facility.
Apple said it would not finance the dividends and buybacks using any of the cash generated by overseas sales, which currently account for about two-thirds of its total cash balance.
Still, Mr. Shulman said that he is concerned that Southern markets will not have a speedy recovery and that Gables may need to finance its dividends by selling properties.
Another worry: If U.S. economic conditions continue to deteriorate, Fandetti argued that there could be risk to the sustainability of specialty finance REIT dividends.
