Back in September 2017, private equity firm Sycamore Partners acquired Staples, Inc., parent company of Top 40 distributor Staples Promotional Products (asi/120601), for $6.9 billion.

Now, however, Sycamore is poised to remove the majority of its cash from Staples Inc. in a dividend recapitalization initiative that will burden the Framingham, MA-based company with an approximately $1 billion in additional debt, according to sources quoted by Bloomberg Media. The move comes as Sycamore considers possibly putting Staples out for a public offering and exiting the company at some point over the next year, Bloomberg reported.

After taking Staples $SPLS private 18 months ago, Sycamore is looking to exit two thirds of its investment with a $1 billion debt-funded dividend.

Next on the agenda? Potential #IPO. https://t.co/l3n5m9XQiS via @technology w/ @ElizaHannon

— Davide Scigliuzzo (@dscigliuzzo) March 23, 2019

According to Bloomberg, the planned debt sale, if successful, will enable Sycamore to gain back about two-thirds of the $1.6 billion it invested to take Staples’ corporate office-supply business private 18 months ago. Would that occur, some $600 million in equity would remain in the entity, Bloomberg said. If the recapitalization and/or a public offering happens, it would center on the division of Staples that sells to large corporate clients. The PE firm previously separated that business unit from Staples retail operations. In sum, Staples debt burden would rise from $4.25 billion to around $5.325 billion.

As part of the potential machinations, per Bloomberg, Staples will need to buy back about $1 billion of unsecured bonds at a “make-whole premium” in order to compensate investors for future interest payments they would then not receive. That could result in a payment of 111 cents on the dollar.

“Bond investors will not be the only ones to benefit from the buyback,” Bloomberg reported. “Sycamore has been purchasing the unsecured notes, which traded as low as around 88 cents on the dollar last year. It had bought around $71 million of face value of the notes during the first nine months of 2018.”

It’s unclear what impact the dividend recapitalization will have on the operations of Staples and Staples Promotional Products.

Nontheless, PitchBook Data, which covers private capital markets, reported that dividend recapitalizations like the one Sycamore is reportedly contemplating have incurred heightened media scrutiny because companies with onerous debt burdens have had to file for bankruptcy in their wake.

Dividend recapitalisations have received increased media scrutiny in PE, as companies with heavy dividend-driven debt loads have filed for bankruptcy.#PE https://t.co/vBUuXdQe7j

— PitchBook Data (@PitchBook) March 26, 2019

For instance, when Golden Gate Capital and Blum Capital purchased discount footwear chain Payless in a leveraged buyout in 2012, they paid themselves more than $350 million in dividends. “Weighed down by debt and lagging sales, the company twice filed for bankruptcy, with the most recent in February leading to a liquidation that includes closing the company's 2,500 North American locations,” PitchBook reported.

In other cases, things have worked out. TPG Capital and Leonard Green & Partners undertook a couple dividend recaps that tallied in excess of $1.1 billion over the course of the decade or so that they owned Petco. The firms eventually sold the business for a reported $2.7 billion profit to CVC Capital Partners and Canada Pension Plan Investment Board in 2016. The retailer has continued to do well.

With estimated annual North American promotional products revenue of $592.9 million, Staples Promotional Products ranks second on Counselor’s latest list of the largest distributors in the industry.