LPL Restructures Debt, Will Start Paying Dividends

On the dividend front, LPL will pay a special $2/share dividend, its first, on May 25, 2012 to all shareholders of record as of May 15, 2012. In addition, LPL plans to pay regular quarterly dividends, initially up to $0.12 ($0.48 annually), in the second half of 2012.  However, Moore was quick to point out that those quarterly dividends would still need to be approved by LPL’s board.

Moore said the restructuring and dividend reflected the “primary component to our capital management  strategy.” That is, to “invest in organic growth of the business; provide ‘oxygen’ capital” for possible acquisitions; conduct share repurchases to offset any dilution from its option grant programs for management and advisors; debt repayment; and dividends. “We’ve become much more clear about how we use those levers,” Moore said, with Monday’s announcement marking a “key milestone in that process.” The debt restructuring and dividend payment arose out of a “fairly large balance of cash on our balance sheets” from cash flow of the business and from LPL’s IPO in November 2010, which Moore said yielded a set of tax refunds.

With the restructuring, which he characterized as a “one-for-one takeout of debt, so no incremental debt was created,” LPL decided to use “a portion of the excess cash for the $2/share dividend,” or about $230 million, which Moore said would “take free cash down to about $300 million, which is consistent with the size of our business and its cash flow needs.”

Moore concluded by saying the actions “when taken together, constitute a much more firmly established approach to our capital management effort—ability to invest in the business organically; to attract new advisors; enhance growth of existing advisors” and invest in technology.