While the return of the infamous dividend recapitalization has turned some heads of late, there's little fear in credit markets that conditions are poised for a return to the heady days of the credit craze.

Instead, market participants tend to view the recaps as positive signs. It's hard to argue that the market's willingness to allow companies to take on high-yield debt to pay special dividends to shareholders is anything but evidence of greater appetite for risk, and at this point, that's a good thing.

Take aerospace company TransDigm Group Inc.'s offering of $425 million of five-year high-yield bonds. According to the company, the bonds will finance a special one-time dividend of $7.65 per share to the company's shareholders.

While its size reminded some market watchers of the dividend deals done during the credit boom, the TransDigm version doesn't pose anywhere near the same threat as those did. Back then, dividend deals were pushed mainly by large financial sponsors that justified this levering up of balance sheets by reasoning that the companies would one day grow into their debt loads through natural increases in their Ebitda. Unfortunately, the belief in salvation-through-growth was mistaken.

Then there's Dex Media Inc., owned by Carlyle Group and Welsh, Carson, Anderson & Stowe, which issued a $250 million dividend offering in January 2004, only two months after a $750 million dividend deal in November 2003. Publisher R.H. Donnelley Corp. bought Dex in 2005, taking on about $5.2 billion of debt in the purchase. That debt helped push Donnelley into bankruptcy last May.

Burned by such transactions, the market has shown an understandable reticence to accept further dividend recapitalizations. According to Standard & Poor's Leveraged Commentary & Data analyst Chris Donnelly, there have been about $3.325 billion in bond deals this year done to finance dividend recaps, with a further $190 million in loans. In 2000, there were $5 billion worth of dividend-related debt deals; in 2005, that number hit some $40 billion.

Still, there's little concern that the added debt threatens TransDigm, as it did Dex Media.

In fact, this month's dividend deal boosted TransDigm's leverage to just 4.3 times, up from 3.1 times. That compares with the 5.6 times debt to Ebitda multiple on the company's books at the time of the Warburg Pincus buyout in July 2003.

But the use of proceeds from this transaction is suggestive. Indeed, there is also another way to view the TransDigm deal: as sending a worrisome signal that deal activity, particularly of the M&A kind, may stay sluggish for a while longer.

TransDigm is a very acquisitive company, having bought 11 companies between 2004 and 2008, according to Securities and Exchange Commission filings. It has also done so while managing its debt load adroitly. A source close to the company says TransDigm's ability to lever up to do deals and then pay down the debt made its pitch to investors on the latest dividend deal more credible. "They'll be able to pay this down in a little over a year," a source says.

But, as another source notes, the company's reasoning for taking on the debt, while a testament to its strength, is also an indictment of lingering economic uncertainty. The cash-heavy balance sheets of corporate America reflect that uncertainty.

Indeed, Standard & Poor's estimates cash on the balance sheets of S&P 500 companies at $700 billion as of August, a record. "They have excess debt capacity, there are not a lot of targets and they decided that getting a 0% return on Treasuries wasn't the best use of capital," the source says of TransDigm's decision.

"It was best to send it to their shareholders."