Vista Equity Partners, the owner of Finastra Group Holdings Ltd., is in discussions with private credit funds for $6 billion to help refinance the financial software developer’s debt, potentially the largest private credit package on record.
(Bloomberg) — Vista Equity Partners, the owner of Finastra Group Holdings Ltd., is in discussions with private credit funds for $6 billion to help refinance the financial software developer’s debt, potentially the largest private credit package on record.
The private equity firm is working with private credit behemoths Oak Hill Advisors LP, which is leading the effort, KKR & Co Inc., Sixth Street Partners, and Ares Management Corp. to deal with more than $4 billion of nearing maturities, according to people familiar with the matter who aren’t authorized to speak publicly. There will be more lenders in the financing, the people said.
The massive transaction highlights the growing heft of the $1.4 trillion private credit market, as participants seize deals traditionally funded via the high-yield bond and leveraged-loan markets, which remain a stretch for riskier borrowers. While Wall Street banks have been clawing back market share by funding some of the higher-quality companies, private credit financing is still attractive to the junkier firms, which have limited options.
Deal Shape
Two structures are currently under consideration. One is for a unitranche, a structure popular in private credit that blends senior and subordinated debt into one, of between $5.3 billion and $5.4 billion, the people said. The loan, which would be the largest recorded deal of its type, would in addition have a junior debt piece totaling $500 million to $700 million, they added.
Another option is to split the financing between a $4 billion first-lien term loan and a $2 billion second-lien term loan, the people said, noting that this would also constitute the largest private financing ever. The unitranche and the first-lien portion would have maturity of six years, while more junior tranches would run seven years, the people said.
Representatives for Vista, Finastra, Oak Hill, KKR, Sixth Street and Ares all declined to comment.
The current largest such financing, for about $5 billion of debt, was provided by a group of direct lenders led by Blackstone Inc. to help fund the leveraged buyout of software maker Zendesk Inc.
Pricing Talks
Pricing for the Finastra deal is still under negotiation but is expected to come at a premium to new private credit buyout financing, which has tended to be 6.25% to 6.75% over a benchmark, the people said.
Vista Equity has also explored a proposal to keep its current debt and simply extend the maturity for two years, in what is known as an amend-and-extend transaction, with investors in the leveraged loan market. Existing lenders were angling for the private equity firm to pare down the amount of debt held by the company.
The financial software company’s 2024 debt includes a $375 million revolver expiring in March, and $4.1 billion of first-lien loans denominated in dollars and euros that mature in June, according to Moody’s Investors Service. The ratings agency last month cut the company’s rating to the Caa tier from B3 and the first-lien loan to B3 from B2, both deep in junk territory, citing the challenges to refinancing due to volatile capital markets.
Despite expectations for improved profitability, Moody’s expects Finastra to burn through cash since new borrowing costs would be much higher.
S&P last October lowered the company’s rating to CCC+ from B-, saying its capital structure was unsustainable. If the company opts to refinance with private credit debt, these ratings would no longer be required, according to the people.
Cash in Hand
Managers of collateralized loan obligations, the leveraged loan market’s biggest buyers, are currently wary of purchasing or holding debt rated B3 and lower, given the prospects of a recession and ensuing downgrades by ratings agencies. CLOs are constrained from holding too much CCC rated debt.
In contrast, private credit firms have cash to deploy at the moment. The funds earmarked for what would have been a record $5.5 billion private buyout loan for Cotiviti are no longer needed after Carlyle Group Inc.’s bid for a stake collapsed, and the $2.6 billion of private loans set aside for Blackstone’s purchase of a unit of Emerson Electric Co. are expected to be swapped out for junk bonds and leveraged loans.
The London-based Finastra was formed from a 2017 merger between Misys Group and D+H Corp.
(Adds KKR as among the lenders, more details on company.)
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.