A group of private credit lenders is in discussions to provide a roughly $6 billion debt package to help Vista Equity Partners’ financial software company Finastra Group Holdings Ltd. refinance debt, in what would be the largest private credit package ever.
Expect to see more $5 billion to $6 billion-sized private credit debt deals ahead, Cade Thompson, head of U.S. debt capital markets at KKR, told Bloomberg.
“The disruption in the syndicated side of the marketplace has certainly allowed for a bigger avenue, including us, to use the private credit marketplace,” he said.
“When we go out and whiteboard a new deal, acquisition financing, LBO, whatever the case may be, we’re always examining as a fiduciary all alternatives that are available to us,” he said. “And that includes the direct channels, senior on through the junior portion of the capital structure, as well as the syndicated marketplace.”
In the last 12 to 18 months, “as markets have been disrupted, there has been significant flow that’s been redirected to the private credit channel,” he added.
Earlier this year, a different group of private credit lenders put together a $5.5 billion debt package for healthcare technology company Cotiviti Inc., which would have been the largest private credit debt deal for a buyout. But the transaction the debt was backing fell apart after Veritas Capital and Carlyle Group Inc. ended their talks for Carlyle to take a stake in the firm.
Meanwhile, the big investment banks have been able to win some recent debt deals as syndicated markets stabilize. Competition is expected to heat up when acquisition activity eventually returns.
Macroeconomic uncertainty and the valuation gap between buyers and sellers has caused a pause in broader mergers and acquisitions activity, Thompson said. But that creates opportunities for a firm such as KKR, which can provide a range of services, including debt financing at the senior down to the junior level.
“It’s important to note that while markets are more challenged, markets are functioning,” Thompson said. “What you’re seeing more through the syndicated side of the marketplace is really the lower levered, bigger equity checks, more highly corporate rated assets that are being met with great fanfare.”
“Having said all of that, we’re also seeing other assets find homes in the syndicated marketplace, too,” he said.
Thompson cited recent broadly-syndicated deals by KKR-owned companies used to refinance debt or push out maturities: a $4.2 billion leveraged loan for Internet Brands, a roughly $1.9 billion junk bond and leveraged loan for Heartland Dental and a $650 million loan for Optiv Inc.
On Optiv, a cybersecurity firm, “12, 15 months ago that would have been a very straightforward exercise where we change a little bit of rate, perhaps change some of the documentation, extend the maturity and move on with life,” he said. “It’s not that straightforward in the current environment and that’s okay. It’s just causing us to be a little bit more thoughtful, a little bit more creative around how we create these solutions.”
