(Bloomberg) -- Veritas Capital is looking to reduce its stake in a private credit loan that financed Thoma Bravo’s buyout of Medallia Inc., according to people with knowledge of the matter.
Direct lenders have been approached about their interest in buying a chunk of the loan, which was arranged as a $1.8 billion deal in 2021 by a group of firms led by Blackstone Inc., said the people, who asked not to be identified because the discussions are private. The loan hasn’t traded since it was originated and Veritas has not yet completed any trades, one of them said.
Veritas’ attempt offers a rare glimpse into the shifting landscape in the $1.6 trillion private credit market. Direct lenders typically pride themselves with holding the loans they originate until maturity, unlike investors in the broadly syndicated debt market, who trade in and out of loans frequently. Players including Apollo Global Management Inc., Golub Capital and JPMorgan Chase & Co. have made efforts to increase trading activity in private debt.
So far, lenders to Medallia have acted as a unified group. As revenue came in below expectations last year, they agreed to give the company more breathing room to meet its growth targets by allowing it to defer a portion of its interest payments for two years longer than originally anticipated, according to one of the people.
Lenders are marking the Medallia loan at close to face value, according to regulatory filings, giving no indication of distress. Blackstone marked the loan at 95 cents on the dollar as of the end of the third quarter, while Apollo had it at par. Antares marked the debt at 97 cents in early November.
Representatives for Veritas, Thoma Bravo, Blackstone and Antares declined to comment. Medallia and Apollo did not respond to requests for comment.
Medallia, known for its customer satisfaction surveys, is in the midst of a leadership transition. Chief Executive Officer Joe Tyrrell left the company in April, after about a year in the job. Thoma Bravo has appointed one of its own partners, Mike Lipps, to replace him on an interim basis.
Veritas’ credit unit has also experienced a shakeup of its own. Mark Basile, who previously served as co-head of credit and capital markets alongside Brendan Dillon, left the firm earlier this year, Bloomberg reported.
The Medallia loan pays interest at 6.5 percentage points over the Secured Overnight Financing Rate plus an adjustment, according to regulatory filings. Four of those points are paid “in kind,” meaning they get added to the loan’s principal, the filings show.
The loan was done with a so-called recurring-revenue structure, a financing avenue typically used by fast-growing software companies that are still burning through cash to fund their expansion. Because these companies are generally unsuitable for the broadly syndicated debt markets, this type of debt has become a popular niche for private credit lenders.
--With assistance from Rene Ismail.
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