Apollo Global Management Inc. and HPS Investment Partners are among lenders that have offered to help provide a $5.5 billion loan supporting the buyout of healthcare technology firm Cotiviti Inc., in what would be the largest buyout financing ever arranged by private credit firms, according to people with knowledge of the matter.
Blackstone Inc., along with multiple other lenders, is also expected to participate in the financing for Carlyle Group Inc.’s acquisition of half the company currently owned by Veritas Capital, said the people, who asked not to be identified discussing a private transaction. The deal would value Cotiviti at nearly $15 billion, including the record private loan, Bloomberg previously reported.
It’s the latest blow for Wall Street’s largest investment banks that have seen their relevance wane in leveraged buyout financing, a lucrative but risky business that consists of helping private equity firms finance acquisitions through debt that is eventually sold to third-party investors. Several banks have been pitching such a syndicated solution as an alternative to the private credit deal, though Carlyle and Veritas have so far preferred to pursue the private funding route, the people said.
At $5.5 billion, the loan for Cotiviti would surpass the nearly $5 billion financing that a group of private credit lenders led by Blackstone arranged last year for the take-private of Zendesk Inc., the largest such deal currently on record, according to data compiled by Bloomberg. Details of the Cotiviti financing have not yet been finalized and the plans might still change, the people said.
Private credit has grown quickly, hitting $1.4 trillion of assets under management globally at the end of 2022. Research firm Preqin expects the market to reach $2.3 trillion by 2027.
Representatives for Carlyle, Apollo, Blackstone and HPS declined to comment, while spokespeople for Veritas Capital didn’t respond to requests for comment.
Strong Demand
Private credit firms dialed back support for bigger, riskier deals in the second half of last year after borrowing costs spiked amid rising interest rates, quickening inflation and increasing geopolitical risk. The Cotiviti deal marks a return to the type of large-scale financings that had been gaining in popularity, and is being closely watched as a harbinger for future deals.
Early pricing discussions on the Cotiviti unitranche loan are around 6.5 percentage points over the Secured Overnight Financing Rate and a discounted price of about 97.5 cents on the dollar, the people said. The debt is already oversubscribed with orders from private credit funds, and as more lenders are added pricing terms could improve for the sponsors, the people added.
The financing package also includes $1 billion of preferred equity and a $500 million revolving credit facility, the people said. Carlyle will contribute half of the deal’s $6.25 billion equity check, while Veritas will provide the other half from another of its buyout funds, according to one of the people.
Veritas took Cotiviti private in 2018 and has been seeking an exit for a couple of years. The firm tapped advisers to explore an initial public offering and sale of the company in 2021. A sales process began last year but stalled after the Federal Reserve began rapidly raising interest rates, sending debt markets into a tailspin and complicating private equity’s ability to finance a deal, Bloomberg previously reported.
Based in South Jordan, Utah, Cotiviti sells its services to payers like commercial health insurers and the government, auditing claims and analyzing data to help them ensure payments to doctors and hospitals are accurate.
