Thoma Bravo has agreed to a wide range of lender protections to secure a two-year extension for roughly $5bn of debt at cybersecurity software company Proofpoint, highlighting the growing leverage creditors have gained over private equity sponsors with large software exposures, according to a report by Bloomberg.
The buyout firm agreed to around 40 changes to Proofpoint’s loan documentation during negotiations that concluded last month. The package includes tighter restrictions on additional borrowing, investments and asset transfers, as well as protections designed to prevent transactions that could weaken lenders’ claims on the company.
In return, most lenders agreed to extend the maturity of the debt by two years. The deal will increase Proofpoint’s annual interest bill by about $60m.
The agreement illustrates the challenges facing private equity firms that built large software portfolios during years of strong demand for software-as-a-service businesses. Concerns that artificial intelligence could disrupt established software business models have weakened valuations and made exits and re-financings considerably more difficult.
Thoma Bravo is particularly exposed, with around $9bn of portfolio company debt scheduled to mature by the end of 2028. That includes more than $2bn of debt at cybersecurity company Sophos due in March.
The Proofpoint restructuring could therefore provide a template for other sponsors facing large maturity walls, as lenders demand greater protections in exchange for refinancing or extending loans.
Negotiations began with Thoma Bravo proposing roughly a dozen amendments to the existing loan agreement. Following nine days of discussions, that number had grown to approximately 40.
Among the most significant provisions was an “omni blocker”, which places restrictions on transactions that could move assets beyond creditors’ reach, introduce debt senior to existing lenders or otherwise weaken their claims.
Lenders also secured mandatory quarterly calls with the company, giving them regular access to management and greater visibility into Proofpoint’s financial performance.
Additional protections were designed to prevent the transfer of valuable intellectual property and other assets outside the lenders’ reach, while certain privately negotiated debt repurchases were also restricted.
Thoma Bravo did retain some important advantages. Proofpoint’s debt remains covenant-lite, meaning the company is not required to satisfy regular financial tests linked to leverage or earnings. The sponsor also avoided having to inject additional equity into the business.
