(Bloomberg) -- A group of private credit firms including 26North Partners are closing in on a deal to lend to Vista Equity Partners-backed Alegeus Technologies, after the software firm tried to refinance existing debt with a new leveraged loan.
$Bank of America Corp(BAC-N)$. shelved a $525 million broadly syndicated offering for Alegeus on Thursday, according to people with knowledge of the matter who asked not to be identified as the details are private. Some said potential investors, namely collateralized loan obligation managers — the largest buyers of institutional leveraged loans — were reticent to fund a large dividend as part of the transaction.
The employee health-benefits software company’s direct-lending deal has attracted more orders than the amount set to be borrowed and is slated to close this month, the people said.
Funds in the $1.7 trillion private credit market, which have historic amounts of cash in their coffers, are taking market share from Wall Street banks. They’re sometimes grabbing deals already in syndication. A group of direct lenders earlier this year provided $385 million of debt to Ribbon Communications Inc. after the firm had launched a leveraged loan sale.
Representatives for Vista, 26North and Bank of America declined to comment Thursday while Alegeus did not respond to requests for comment.
The $1.4 trillion US leveraged finance market has also made a strong comeback in the past month, with junk-rated companies looking to take out debt before the US election.
Borrowers have sold the most leveraged loans ever this year for dividend recapitalizations, handing over cash to the companies’ backers and allowing private equity firms to return cash to their investors. That as the market for traditional exits like mergers, acquisitions and initial public offerings has, until recently, all but dried up.
Bank of America launched Alegeus’ broadly syndicated deal in late September, with a commitment deadline of Oct. 1. However, the deal was still in discovery earlier this week as lenders pushed for stronger protections.
Some potential investors also had reservations about Alegeus’ sensitivity to lower interest rates. The firm generates some revenue from holding cash in interest-bearing accounts, and Moody’s Ratings said last month that “longer-term exposure to low interest rate environments remains a credit risk” for Alegeus.
With the broadly syndicated loan, Vista sought to slash Alegeus’ borrowing costs associated with existing private debt, plus fund a dividend. The refinancing could have saved the company about $75 million in interest expense over the life of the loan.
Other firms have also sought to shed private debt in the syndicated loan market in recent weeks, including K2 Insurance Services, Circor International Inc. and Hanger Inc.
(Updates with context throughout.)
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