Clearlake Capital Group has completed a significant debt restructuring of Quest Software, injecting $350m in new capital to support the company’s artificial intelligence ambitions and growth strategy – though the transaction reorders the rights of existing lenders and imposes losses on some creditors, according to a report by Bloomberg.
According to sources familiar with the matter, the recapitalisation pushes certain lenders – particularly those not participating in the transaction – further down the capital structure. These creditors, including junior and non-consenting first-lien holders, are expected to face reduced recovery prospects.
The complex transaction, backed by over 90% of Quest’s existing first-lien lenders and around 65% of second-lien holders, involved the exchange of existing debt into a new first-lien, second-out term loan priced at 92 cents on the dollar.
Lenders who were not party to the negotiations face a steeper discount: they can convert only 30% of their debt into second-out paper at 77 cents, with the balance rolled into third-out debt at the same price, sources said.
Clearlake itself exchanged its existing first-lien exposure into a new fourth-out tranche at par, while second-lien lenders were offered the option to convert into a fifth-out, first-lien instrument at 100 cents on the dollar. The new fifth-out facility pays interest at 6.75% in-kind, with an additional 1% over SOFR in cash. Clearlake is understood to be receiving a differentiated interest rate on its tranche.
Quest Software, which has seen its debt levels rise from $2.1bn at the time of its 2022 buyout to over $3.5bn by mid-2024, has faced mounting pressures from high interest costs and declining revenues. In March, S&P Global Ratings downgraded the company further into speculative-grade territory.
The company is now evaluating acquisition opportunities to drive growth and synergies. Sources noted that Clearlake has explored combining assets from Quest and RSA Security – two companies in its portfolio – into a unified entity, with a partial sale also under consideration.
Quest’s identity management unit, One Identity, may also play a role in future transactions. According to loan documentation, any acquisition financing could be structured to sit senior to the One Identity assets and newly acquired assets.
