Thoma Bravo turns to private market for largest-ever unitranche financing

  • Largest unitranche deal by a BDC
  • Ares, Golub, Varagon take part in credit facility
  • Private debt solutions ‘creeping up into the syndicated loan market’

Thoma Bravo’s $1.1 billion loan deal to finance its take-private of Qlik Technologies Inc is evidence of the rising role of private debt solutions in deals that used to be handled by the broadly syndicated loan market, sources told Buyouts.

Thoma Bravo turned to the largest publicly traded business-development company, Ares Capital Corp, as administrative agent, joint lead arranger and joint bookrunner for a $1.075 billion unitranche credit facility in its June 2 deal for Qlik.

This was instead of the more traditional route of tapping a team of investment bankers to sell the debt to a wide swath of institutional investors.

Ares said it’s the largest unitranche financing by a BDC to date. It’s expected to close in the third quarter.

“It jumps out at you,” said one executive at a big lending firm who spoke on condition of anonymity. “It takes unitranche financing to a whole other level. It’s an important data point.”

The executive characterized the loan as “aggressive” because Ares and three other lenders taking part in the deal will hold a significant portion of the loan on their balance sheets. Other lead joint arrangers include Golub Capital, TPG’s TSSP credit platform and AIG-backed Varagon Capital Partners. Ares plans to bring in other lenders to the credit facility.

“At this point in the cycle — and we can argue where we are in the cycle — that’s a pretty aggressive deal,” the executive said. “That’s a big single point of exposure. I find that fascinating.”

Qlik, a visual analytics company, agreed to go private in a cash deal for $30.50 a share, or $3 billion. That’s a premium of 40 percent over the company’s average stock price over the previous 10 days of trading.

The price values the company at about 21x its projected fiscal 2018 EBITDA of $141 million, according to Thomson Reuters estimates.

Ares and Thoma Bravo spokesmen declined to comment.

Quick close

Kip deVeer, CEO of Ares, said Thoma Bravo turned to the BDC “for certainty of closing as well as our scale and experience in closing large transactions at a time when banks continue to retrench from lending to corporate clients,” according to a prepared statement.

Erwin Mock, director of capital markets at Thoma Bravo, said that the deal “required a quick commitment” from Ares and that the buyout firm sought to get the financing arranged “in a timely manner.”

Another loan executive said the use of the large unitranche loan appears to offer certainty of financing in a take-private deal versus syndicated loans, which have been choppy this year.

While borrowing conditions have improved in recent weeks, financing of many larger buyouts stumbled in the second half of 2015 and early 2016 in the face of jitters in the junior debt markets.

“Thoma Bravo’s borrowing relationships have been more on the syndicated-loan side,” the executive said. “Now, large private equity groups are building up relationships with private debt providers.”

With at least four private lenders teaming up on the deal, the unitranche loan is “probably three or four times the size of what capabilities were four or five years ago,” said the executive, who added they’ll keep close watch on the final structure of the loan when it closes. Further details of the Ares loan facility weren’t released.

Along with Ares, a handful of other unitranche lenders have enough critical mass to hold $100 million to $300 million in debt on their own, including Kohlberg Kravis Roberts & Co, Golub Capital, Guggenheim Partners, PSP and a few others, the executive said.

Market opportunity

Overall, unitranche financing offers a senior secured tranche from one or more lenders that resembles a combined senior and subordinated debt structure. In years past, investment banks typically provided senior debt and private funds supplied mezzanine debt.

Middle-market lenders said last year they were seeing more club deals involving multiple parties in unitranche loans as part of a changing dynamic in the space. See related story.

One major source of unitranche loans has been senior secured loan programs, which often include two entities providing debt.

A major duo in the SSLP space, Ares and Antares Capital, was broken up when General Electric Co sold Antares to Canada Pension Plan Investment Corp earlier this year.

In January, Antares Capital and LStar Capital, the credit affiliate of Lone Star Funds, said they’d jointly provide access to unitranche loans for middle-market borrowers.

Meanwhile, Ares and AIG-backed Varagon and others have teamed up to provide club deals on unitranche debt.

Action Item: Thoma Bravo loan announcement:

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