Spotify AB, the music streaming service, is arranging a convertible debt package with TPG, Dragoneer Investment Group and Goldman Sachs.
The three investment firms are joining forces to provide the company with $1 billion in loans, according to The Wall Street Journal and other publications. The deal is expected to close on Friday.
Alternative investment firm TPG and hedge fund Dragoneer are financing $750 million of the package, which will be split evenly between TPG’s growth business, the TPG Special Situations Partners (TSSP) debt platform and Dragoneer, PDI understands.
The remaining $250 million will be financed by clients of Goldman Sachs, which advised on the transaction, according to The Wall Street Journal.
Spotify reportedly agreed to pay a 5 percent interest rate per year on the debt. That will increase by 1 percent every six months until it reaches 10 percent or the firm goes public.
The lenders will be able to convert their debt into equity if the company goes public in the next year. They will get a 20 percent discount on the public shares of the initial public offering. If a year passes without a flotation, the discount will increase by 2.5 percent every six months. The company has told investors it plans to go public in the next two years.
According to The Wall Street Journal, Spotify had $600 million left on its balance sheet before raising the new debt. It had collected over $1 billion from a variety of other investors in the past, including Founders Fund, Accel Partners, Technology Crossover Ventures and Kleiner Perkins Caufield & Byers. The company last reported financials for 2014, when it showed a net loss of €162 million.
Spotify was founded in Sweden in 2006 and has its headquarters in Stockholm and London.
US alternative investment firm TPG manages $70 billion across a variety of strategies and has $12 billion under management in its TSSP debt platform.
Dragoneer is a San Francisco-based hedge fund that has been known to make loans to tech companies such as AirBnB and Etsy.