NEW YORK, April 7 (Reuters) - Data analytics firm Qlik Technologies is in the market with a US$1.07bn loan refinancing that is expected to halve the interest margin on a highly leveraged loan that it raised from direct lenders less than a year ago to finance its US$3bn sale to private equity firm Thoma Bravo.
Thoma Bravo financed the take private acquisition with a record US$1.075bn unitranche loan that was provided by a group of alternative capital providers led by business development company Ares Capital Corp in mid 2016 after traditional bank lenders were unable to match the debt or leverage on offer.
Qlik is one of a host of highly leveraged US companies that are taking advantage of white hot demand from institutional loan buyers desperate for higher yields and floating rate assets in a rising interest rate environment to refinance existing loans.
Issuers booked a record US$261bn in opportunistic refinancings in the first three months of 2017, pushing average first-lien institutional term loan spreads to 343bp, excluding Libor floors or Original Issue Discounts, according to LPC data.
“I would say that demand seems very strong right now. It’s certainly a reason why Qlik can price a deal,” a banking source said.
Alternative lenders have been picking up business from traditional banks since 2013, when federal regulators introduced leveraged lending guidelines to curb leverage and restrict capital to reduce systemic risk in the banking sector.
This time, Qlik has turned to traditional banks Morgan Stanley and Goldman Sachs to lead its new loan. The two leads are selling the deal on the back of the company’s improved performance and reduced leverage, which at less than 5.0 times total debt-to-Ebitda is now in line with the guidelines requiring extra scrutiny when leverage exceeds 6.0 times.
“Fast forward and the company has recognized nearly all of the cost cuts that were projected, and at the same time Ebitda has grown very nicely,” the banking source said.
The refinancing swaps Qlik’s unitranche loan for a single first-lien term loan B. The deal is helping the company to cut nearly 500bp off the spread, which will save about US$50m in interest expense, according to Moody’s Investors Service.
Unitranche loans are typically seen on small to mid-sized buyouts and are popular with investors for high yields and private equity firms for ease of execution and certainty of funding in volatile or capital constrained markets. The loans offer senior and subordinated debt in one instrument with a blended cost of capital and average yields of 8-9%.
Moody’s gave the new deal B3 corporate family and first-lien facility ratings and expects the company to generate 2017 revenues of approximately US$785m with average annual sales growth of more than 10% in the next two years.
The spread on the US$75m revolver and the US$995m term loan is guided at a range of 350bp-375bp over Libor, down from 825bp over Libor on the unitranche loan. The term loan has a 1% Libor floor and is offered at a discount of 99-99.5.
Traditional banks subject to US leveraged lending guidelines and tough regulatory capital requirements were unable to lend to Qlik’s original deal in June 2016 given the amount of debt required, several banking sources said.
Alternative lenders not subject to leveraged lending guidelines took big losses on deals that failed to syndicate in the fourth quarter of 2015, which reduced balance sheet capacity and they pulled back from lending.
Although a syndicated deal was available, the unitranche loan offered certainty of close and pricing that the syndicated loan was unable to guarantee, a second banker said.
At US$1.075bn, the deal was too large for any single direct lender and Qlik assembled a group of about 10 lenders after going out to more than 20, the banking source said.
Ares Capital led the deal, which was one of the biggest-ever provided by a business development company, together with joint arrangers Golub Capital, TPG’s credit specialist TSSP and Varagon Capital Partners.
Unitranche loans typically carry higher prepayment penalties. Qlik’s original unitranche loan has a premium of 105 cents on the dollar if the loan is repaid, which the company will have to pay to do the current refinancing. The new loan has call protection of 101 for six months.
If Qlik completes its proposed refinancing, three holders of the loan, ARCC, TSLX and GBDC - business development companies managed by Ares Capital, Golub Capital and TSSP, respectively - should be fully repaid, according to a Wells Fargo equity research note.
Qlik’s cost saving will cover the cost of paying the call protection in just over a year, the first banking source said. (Reporting by Leela Parker Deo and Jonathan Schwarzberg; Editing By Tessa Walsh)