Clearlake Capital-backed Quest Software has initiated a second debt reshuffle in three months, launching a new exchange offer designed to ease its mounting debt burden by rearranging creditor repayment priorities, according to a report by Bloomberg.
The latest transaction enables holders of Quest’s fifth-priority debt – currently the lowest-ranked creditors in the capital structure – to swap their holdings into a newly created ‘3.5-out’ term loan at a below-par valuation, sources close to the matter revealed.
This follows a $350m cash infusion in May that had already pushed numerous creditors further down the repayment hierarchy.
This move is emblematic of the broader wave of distressed exchanges sweeping the market over the past year, as liquidity-strapped borrowers and opportunistic lenders leverage flexible credit agreements to reduce debt burdens and improve loan terms.
However, such transactions often inflict significant losses on sidelined investors, who face diminished collateral and lower repayment priority.
A spokesperson for Clearlake Capital declined to comment, and multiple outreach attempts to Quest went unanswered.
Quest’s debt pile swelled to over $3.5bn by mid-2024, up from $2.1bn at acquisition in early 2022, according to S&P Global Ratings, which downgraded the company further into junk territory in March.
Following the May exchange, S&P noted that while Quest has sufficient liquidity to service its debt over the next 12 months, elevated leverage, business execution risks, and weak cash generation after debt servicing could render its long-term capital structure unsustainable.
Under the new deal, holders of the fifth-out loan can exchange at approximately 85 cents on the dollar into the ‘3.5-out’ loan, which ranks above the Clearlake-backed fourth-out loan established in the previous restructuring. The fifth-out loan currently trades at around 25 cents on the dollar, per broker data seen by Bloomberg.
