When a consortium of private debt providers, led by Ares Management’s business development company, provided financing to private equity shop Thoma Bravo in 2016, it represented one of the largest non-bank lending transactions ever.
The financing, assisting Thoma Bravo in the buy-out of technology firm Qlik Technologies, saw Ares, TSSP, Golub Capital and Varagon Capital Partners provide more than $1 billion in a unitranche facility to the private equity shop.
The deal was heralded, at the time, as the first billion-dollar deal led by a BDC. Now, it’s being refinanced as two Wall Street banks – Morgan Stanley and Goldman Sachs – are offering better terms on the debt.
The refinancing is a reminder of the liquidity available to borrowers in an increasingly competitive space. It’s also further evidence that, for a deal this size, it’s difficult for private debt funds to compete with banks when it comes to cost of capital.
Reports last month noted the refinancing of the debt is set to save Qlik approximately $50 million in interest payments. The firm is also expected to generate $60 million in cashflow from the new financing arrangements.
Kipp de Veer, partner and head of Ares’ credit group, had previously told PDI his firm was attracted to the deal having worked with Thoma Bravo in the past. The private equity firm has a track record, he said, of working with companies with somewhat bloated balance sheets and making them profitable and attractive entities.
For its part, Thoma Bravo is heralding the performance of Qlik following the initial financing. Erwin Mock, managing director at Thoma Bravo, tells PDI Qlik has seen its revenue grow by approximately 15 percent since it took on the initial financing.
Despite being worth more than $1 billion, an amount Mock says is usually ideal for syndicated bank loan financing, debt funds were utilised for the initial financing because of the large amount of pro-forma restructuring proposals attached to Qlik.
“[The financing] assumed if those restructurings were taken it would reduce costs, which would, in turn, increase your EBITDA,” says Mock. He also notes 98 percent of the restructuring proposals have been completed – explaining the timing around this refinancing.
The reported interest rate attached to the initial loan provided by the consortium of debt funds was 9.25 percent. Thoma Bravo is attempting to reduce the interest of the debt by more than half with the refinancing, reportedly trying to slash the rate to 4.5 percent.
Without the restructuring pro forma items attached to it, Qlik is more suited to bank financing. Mock adds the plan was always to refinance the deal down the line, but he’s surprised by how quickly it happened.
For their part, private debt providers, such as Ares, often have call protection attached to debt deals. In this instance, the refinancing means Ares will regain the full amount of the provided financing plus a refinancing fee determined in the initial terms of the loan.