• Unitranche deal is largest underwritten by a BDC, Ares says
  • Stepping in to finance as banks pull back due to regulations

Ares Capital Corp. agreed to underwrite a $1.075 billion loan for Thoma Bravo’s purchase of software company Qlik Technologies Inc., filling a lending void left by banks hampered with new regulations.

The so-called unitranche loan, which fuses senior and junior debt into one instrument, is the largest to be led by a business development company, Ares said. The firm committed to hold a large portion of the financing and is seeking to attract more lenders to the creditor group, it said in a statement Thursday.

Golub Capital, TSSP and Varagon Capital Partners are also underwriting the deal.

The transaction comes as U.S. and European regulatory changes restrict banks from making risky loans by heightening their capital requirements, paving the way for nonbank institutions like business development companies, or BDCs, to extend cash. The closed-end funds have gained market share by providing financing to organizations that banks and private equity firms are reluctant to lend to.

Debt Structure

Unitranche loans create a simplified debt structure that’s typically used to facilitate leveraged buyouts. While senior debt costs less than junior, unitranche debt usually bears an interest rate in between the two.

Companies typically negotiate separate agreements for senior and junior financing, with senior debt being repaid first in a bankruptcy. Because the unitranche structure blends the two classes, the lack of distinction between creditors could complicate lender recovery in a bankruptcy situation should disputes arise.

Private equity firm Thoma Bravo turned to Ares, which says it’s the largest business development company, for help funding its all-cash purchase of Qlik because it needed a "quick commitment" for the large financing, Erwin Mock, director of capital markets at Thoma Bravo, said in the statement.

Loans by U.S. BDCs, many of which have credit lines with banks, jumped to $55 billion in 2014 from $17 billion in 2010, according to Deloitte LLP. BDCs raise equity from shareholders and then borrow from banks and bondholders to create a pool of cash they can loan to companies.

‘Growing Acceptance’

The deal speaks to the "growing acceptance" of direct lending, Ares Capital Chief Executive Officer Kipp deVeer said.

Qlik, whose software helps companies analyze and share data for better insight into business patterns, had been seeking potential buyers for some time. It received preliminary offers from Bain Capital and Permira in addition to Thoma Bravo, people familiar with the discussions said in April.

“Thoma Bravo turned to us 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 due to changes in regulation," deVeer said.

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