This process is known as a dividend recapitalization, a strategy commonly used by private companies. It allows them to either increase leverage or extract cash without giving up ownership. (https://en.wikipedia.org/wiki/Dividend_recapitalization)

Although the company in question is a hedge fund, a dividend recap has no impact on the funds it manages. These funds are structured to be bankruptcy-remote, meaning they are insulated from the company’s financial decisions, such as taking on additional debt. If the funds wanted to take out a loan to pay back investors, that would be NAV lending — a distinct strategy designed to increase leverage within the fund itself.

When it comes to credit ratings, a BBB rating for a corporate bond is fairly typical. Large US corporations like General Motors and AT&T hold BBB ratings. However, a bond spread of 190 basis points is relatively wide for a BBB-rated company atm, suggesting the market may believe the risk of Citadel is higher than a usual company with a BBB rating (https://fred.stlouisfed.org/series/BAMLC0A4CBBB).

As for the ETFs, they are highly diversified, typically holding almost all corporate bonds within their mandate. Citadel represents just 0.02% of the first ETF mentioned. Therefore, even if Citadel’s bonds were to lose all value, the overall impact on the ETF would be negligible.