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KKR, Thoma Bravo Exploits Competitive Lending Markets To Revamp Portfolios

This article was originally posted by ION ANALYTICS, on April 16th

In recent years, the dynamics of capital markets have posed significant challenges for private equity firms like KKR and Thoma Bravo, particularly in the realm of refinancing existing private debt. The landscape, marred by high-interest rates and periods of inactivity within the broadly syndicated loan (BSL) market, has begun to shift favorably for borrowers in 2023. This shift is attributed to an influx of private credit dry powder and the reopening of the BSL market, allowing for more competitive conditions. Firms now find themselves in a borrower's market, with the opportunity to secure more favorable terms for refinancing, repricing, and dividend recapitalizations, which in turn can significantly enhance their investment returns. This environment has prompted firms to reassess the balance between the allure of cheaper syndicated markets and the potential downsides of high associated fees.

KKR and Thoma Bravo have actively engaged in this new market environment, taking strategic steps to lessen the debt load on their portfolio companies. KKR's refinancing of Groundworks through the BSL market and Thoma Bravo's repricing of Coupa with its original lenders exemplify the practical application of these strategies. However, the decision to engage in BSL transactions comes with its own set of financial considerations, notably the upfront costs which can range significantly based on various factors, as highlighted by Karl D’Cunha of Ankura. The complexities of dealing with fees, legal expenses, and early repayment penalties necessitate a careful evaluation to ensure that the benefits of lower pricing outweigh the costs. This strategic financial maneuvering underscores the importance of expert insights and a comprehensive market understanding to optimize outcomes in a fluctuating lending landscape.

Read the full article: KKR, Thoma Bravo exploits competitive lending markets to revamp portfolios - ION Analytics

© Copyright 2024. The views expressed herein are those of the author(s) and not necessarily the views of Ankura Consulting Group, LLC., its management, its subsidiaries, its affiliates, or its other professionals. Ankura is not a law firm and cannot provide legal advice.

Money must also be set aside for legal expertise and any early repayment penalties. Lawyers typically charge less on covenant-lite, more straightforward structures and charge more based on complexity, D’Cunha said. Repayment penalties can also vary with 50bps being “not a big deal” but a 3% penalty being high enough to erase the pricing change. Sponsors must carefully weigh the costs of these fees versus the benefits of securing lower pricing.


article, f-performance, finance, financial services, capital advisory, transaction strategy

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