JPMorgan Chase and a syndicate of ten other banks are preparing to offload nearly $2 billion of high-yield bonds for Qualtrics International at roughly 85 cents on the dollar, a discount that would rank among the largest for a new-issue in the US market this year. The banks were left holding more than $5 billion of acquisition financing after a software-sector selloff in March forced them to fund the purchase of Press Ganey Forsta themselves, booking paper losses that exceeded $500 million at the time.
The hangover from March
Eleven banks had committed $5.3 billion to back Silver Lake’s $6.75 billion take-private of Qualtrics and its subsequent purchase of Press Ganey. When investor appetite evaporated amid fears that artificial intelligence would upend legacy software models, the underwriters were forced to warehouse the debt. They opted to wait for third-quarter earnings before attempting a syndication, hoping operating performance would justify a tighter price.
Earnings did not help the pitch
Qualtrics reported third-quarter revenue of $711 million, down from $718 million in the second quarter. Year-over-year growth slowed to 2 percent from 6 percent and 7 percent in the prior two quarters. The company generated $230 million of cash in the quarter and more than $1.1 billion over the trailing four quarters, but the deceleration gives lenders little comfort at a time when new software debt is pricing with significantly higher coupons and stronger covenants.
Existing paper trades lower
The term loan backing the acquisition, which carries a spread of 225 basis points over the US benchmark and matures in 2030, was quoted between 81 and 83 cents on the dollar on Monday. That secondary level sits below the 85-cent talk for the new bonds, suggesting the banks may still need to concede more to clear the $2 billion tranche. The syndicate is also discussing a six-month hold agreement on the unsold portion, preventing individual lenders from breaking ranks before the broader market absorbs the supply.
What comes next
Bankers are targeting pricing before the Thanksgiving holiday, with the remainder of the $5 billion overhang potentially moving into the leveraged loan market later. The discount on offer is a direct read on how the market prices AI disruption risk for a survey-software business: the cheaper the paper, the less confidence lenders have that recurring revenue will survive the cycle.