Thoma Bravo considers lender-friendly terms in $2bn Sophos refinancing
Thoma Bravo-backed cybersecurity company Sophos is turning to its existing leveraged-loan lenders as it seeks to refinance or extend more than $2bn of debt, after attempts to secure private credit financing failed to gain traction, according to a report by Bloomberg.
Thoma Bravo-backed cybersecurity firm Sophos is seeking to refinance or extend over $2 billion in debt after private credit financing efforts fell short, according to Bloomberg. The company aims to provide lenders with more favorable terms, including a higher interest rate, additional amortization, and stricter financial covenants. A potential transaction could commence as early as next month, pending ongoing negotiations.
Thoma Bravo, the investor that acquired Sophos in 2020, has not indicated plans to inject additional equity into the refinancing process, despite concerns raised by some lenders about the impact of artificial intelligence on the software industry. Efforts to refinance Sophos' $2.1 billion term loan, which is due in March 2027, have been ongoing for several months. However, private credit investors had previously declined participation, despite being offered a significant increase in yield.
Sophos has shown positive operating performance, with a 6% year-on-year growth in annual recurring revenue for the three months ending in June and a 10% increase in adjusted EBITDA to approximately $120 million. The company's debt has shown signs of recovery, trading at around 96.88 cents on the dollar, compared to 92.69 cents in February.
This refinancing marks another crucial test for Thoma Bravo, a prominent software-focused private equity investor. The firm had to make substantial concessions to lenders recently to finalize a $5 billion refinancing for another portfolio company, Proofpoint. Additionally, Thoma Bravo has faced challenges related to its investment in customer-experience software provider Medallia, which lost control following creditor intervention earlier this year.
Sophos' attempt to regain access to the syndicated loan market occurs at a sensitive time for both the sponsor and the broader software buyout sector. The willingness of lenders to accept revised terms without additional sponsor equity will be closely monitored as investors assess the refinancing risk across highly leveraged technology companies.
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