The worldwide hunt for yield in an environment of zero rates takes investors to all kinds of places. Booz Allen Hamilton, the consultancy, is putting the finishing touches to a plan to borrow money for a $1bn payout to its shareholders. Among them is Carlyle, the US private equity firm, with a majority stake. Nearly all of Booz’s revenues come from consultancy services to organisations across the US government. The firm’s single biggest customer, accounting for 17 per cent of revenues last year, is the US army.

The upcoming deal will increase Booz’s net debt to about $1.5bn from about $500m, pushing its net debt to earnings before interest, taxes, depreciation and amortisation up to 3 times. Not terrible, but a big jump up from 1 times now. Generally, lenders do not like it when companies borrow to pay dividends, but they tolerate these deals for those that have done well. And Booz has. Revenue for fiscal 2012 was $5.9bn compared with $4.4bn three years earlier over the same period. Ebitda jumped to $488m from nearly $277m.

If the US government continues to rely on Booz and other contractors to keep the military and intelligence apparatus humming, this could be a great company to lend to at the roughly 5 per cent yield being offered on the loan.

The worry, of course, is that the US government, battling high-profile budget deficits, is poised to cut costs and that contractors rather than fully fledged (and often unionised) federal employees will feel the pain first. Booz itself has flagged “uncertainty” and is not forecasting revenue beyond the first six months of the current fiscal year. Lockheed Martin and other defence companies were in Washington recently, warning about how much big spending cuts could hurt their businesses. This deal leaves Booz with its defences down.

Email the Lex team in confidence at lex@ft.com

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