Clearlake Capital Group’s latest debt financing strategy may be tested as tariff announcements cloud the near-term outlook.
In late March, the firm turned to a $5.75 billion bridge loan to speed up the timeline of its $7.7 billion acquisition of data vendor Dun & Bradstreet Holdings Inc. Clearlake, hoping to beat out competition from rival suitors, including Veritas Capital, entered exclusive talks with Dun & Bradstreet on Friday, March 21, and announced the deal the following Monday.
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While the 364-day bridge loan let Clearlake push the deal over the finish line on a much shorter timeline than what would have been required for a fully underwritten financing package, the arrangement includes substantial fees and escalating interest rates meant to incentivize refinancing well before maturity. Clearlake is now on the hook to find more permanent funding.
The lender group includes Morgan Stanley, Goldman Sachs, Barclays, Citigroup, Deutsche Bank, Santander, Wells Fargo, HSBC, and Ares. Because of the bridge loan structure–rather than a syndicated financing–none of the lenders are obligated to find longer-term funding to replace the bridge facility.
Seemingly confident in its ability to refinance, 9fin reported that Clearlake had pushed lenders toward an unconventional provision: if the sponsor could line up a long-term financing package within 60 days, the bridge loan underwriters would refund the loan’s entire commitment fee. The proposal, which could let Clearlake effectively use the banks’ balance sheets for free, received pushback from bankers, but a form of the concept ultimately made it into the final agreement.
Now, what seemed like a relatively straightforward refinancing when the deal was struck could become a more challenging situation.
Last week’s tariff announcements sparked a record $6.5 billion outflow from leveraged loan funds, nearly double the previous record of $3.6 billion set in 2018. Traditional banks are pulling back from new buyout financings, wary of being stuck with unwanted loans on their books should syndications fail.
Some deals have been left in limbo: H.I.G. Capital’s $1.1 billion leveraged loan sale in support of its acquisition of Converge Technology Solutions Corp. was postponed, reports Bloomberg, as was Brookfield’s $2.4 billion CMBS refinancing for a shopping mall.
“Credit volatility is back,” wrote Deutsche Bank strategists on Monday. Saba Capital Management’s Boaz Weinstein was more blunt, warning in a Friday interview with Bloomberg that “the avalanche has really just started–the hit could be faster and the bankruptcy rate could spike much faster than other crises.”
That might mean another opportunity for private credit to jump in and fill the gap left by banks, repeating its aggressive growth during pandemic-related market dislocations.
This time around, however, direct lenders may be more hesitant to rush into new deals. The risk of widespread economic shock and limited policy visibility brings real uncertainty, even for an asset class that has benefited from periods of greater volatility in the past.
On the more bearish end of the spectrum, DoubleLine Capital’s Jeffrey Gundlach expressed skepticism last week at the idea that private credit is any more insulated than the rest of the market: “When public markets experience a sharp decline, like now, it is nonsensical to think private markets are a harbor in the storm. Yet I have heard this absurd assertion twice in the past week: ‘Don’t worry, we’re not down’. Sure.”
For Clearlake, the upshot is that its refinancing bet may suddenly be much harder to pull off.