Key Takeaways
- • Creditors are likely to take control of Medallia, Inc. after a lender-led, out-of-court restructuring, following years of performance headwinds and the sponsor's decision not to provide additional equity, according to a KBRA press release via Business Wire.
- • Medallia's term loan balance has grown to nearly $3 billion from add-on investments and an approximately $500 million payment-in-kind balance, against $1.8 billion of direct lender debt originally provided at Thoma Bravo's October 2021 acquisition at roughly $6.4 billion.
- • KBRA-rated vehicles hold $374 million of Medallia's term loan across six funds, five structured credit transactions and two BDCs, with median exposure of 1.4%.
- • KBRA estimates that including Medallia would lift its Q1 2026 KBRA Middle Market Default Monitor to 2.5% from 2.2%, and does not expect direct impact on KBRA-rated debt instruments.
- • Equity investors in some private credit vehicles are likely to see weaker return performance, with more than $5 billion of equity value expected to be written off.
Summary
KBRA, the credit rating agency, reports that creditors will likely take control of Medallia, Inc., a customer and employee experience software company, after several years of performance headwinds and the decision by its sponsor, Thoma Bravo, not to provide additional equity. The company's term loan, at nearly $3 billion, is one of the larger loans in the direct lending market. KBRA states that KBRA-rated vehicles and the broader direct lending market are well positioned to absorb potential losses.
Thoma Bravo acquired Medallia in October 2021 at a valuation of around $6.4 billion, with direct lenders providing $1.8 billion of debt and an initial loan-to-value below 30%, according to KBRA. Since then, the term loan balance has increased to almost $3 billion through add-on investments and an approximately $500 million payment-in-kind balance. KBRA says financial performance and LTV have deteriorated, which could lead to a default and a lender-led, out-of-court restructuring that would wipe out more than $5 billion of equity value and equitize a portion of the cash-pay debt.
KBRA notes that the broader customer experience software sector faces heightened investor scrutiny. Medallia's closest competitor, Qualtrics, LLC, has seen its broadly syndicated loan fall from 100 in February to the mid-80s, which KBRA says has contributed to JPMorgan Chase & Co.'s challenges syndicating a new financing. KBRA also links the higher starting debt and leverage to software valuations that peaked around the 2021 acquisition period.
KBRA's surveillance covers 13 KBRA-rated transactions and vehicles managed by six platforms with exposure to Medallia. KBRA-rated transactions hold $374 million of the term loan across six funds, five structured credit transactions and two business development companies, with exposure ranging from about 8% to under 0.5% by vehicle and a median of 1.4%. Across the direct lending universe, the loans were initially spread across at least 50 vehicles managed by 13 platforms, and that count has since grown to over 90 across 15 managers through secondary transfers and intra-platform assignments. BDCs hold over $1.9 billion of the term loan, equal to 1.1% of total investments at cost and 0.9% at fair value, with median exposures of 0.6% and 0.5%. KBRA says this exposure is unlikely to materially affect the leverage or capital access of its two rated BDCs, FS KKR Capital Corp. and Monroe Capital Income Plus Corp.
KBRA says that including Medallia would raise its KBRA Middle Market Default Monitor modestly to 2.5% from 2.2% in Q1 2026. Although the potential default would be larger than Pluralsight's and rank among the largest in direct lending, KBRA does not expect a direct impact on KBRA-rated debt, citing portfolio diversification, collateral-based LTV cash sweep triggers, cure mechanics and structural subordination. KBRA does expect the outcome to weigh on return performance for equity investors in some private credit vehicles.
Thoma Bravo acquired Medallia in October 2021 at a valuation of around $6.4 billion, with direct lenders providing $1.8 billion of debt and an initial loan-to-value below 30%, according to KBRA. Since then, the term loan balance has increased to almost $3 billion through add-on investments and an approximately $500 million payment-in-kind balance. KBRA says financial performance and LTV have deteriorated, which could lead to a default and a lender-led, out-of-court restructuring that would wipe out more than $5 billion of equity value and equitize a portion of the cash-pay debt.
KBRA notes that the broader customer experience software sector faces heightened investor scrutiny. Medallia's closest competitor, Qualtrics, LLC, has seen its broadly syndicated loan fall from 100 in February to the mid-80s, which KBRA says has contributed to JPMorgan Chase & Co.'s challenges syndicating a new financing. KBRA also links the higher starting debt and leverage to software valuations that peaked around the 2021 acquisition period.
KBRA's surveillance covers 13 KBRA-rated transactions and vehicles managed by six platforms with exposure to Medallia. KBRA-rated transactions hold $374 million of the term loan across six funds, five structured credit transactions and two business development companies, with exposure ranging from about 8% to under 0.5% by vehicle and a median of 1.4%. Across the direct lending universe, the loans were initially spread across at least 50 vehicles managed by 13 platforms, and that count has since grown to over 90 across 15 managers through secondary transfers and intra-platform assignments. BDCs hold over $1.9 billion of the term loan, equal to 1.1% of total investments at cost and 0.9% at fair value, with median exposures of 0.6% and 0.5%. KBRA says this exposure is unlikely to materially affect the leverage or capital access of its two rated BDCs, FS KKR Capital Corp. and Monroe Capital Income Plus Corp.
KBRA says that including Medallia would raise its KBRA Middle Market Default Monitor modestly to 2.5% from 2.2% in Q1 2026. Although the potential default would be larger than Pluralsight's and rank among the largest in direct lending, KBRA does not expect a direct impact on KBRA-rated debt, citing portfolio diversification, collateral-based LTV cash sweep triggers, cure mechanics and structural subordination. KBRA does expect the outcome to weigh on return performance for equity investors in some private credit vehicles.
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