In the bygone era of cheap debt, private equity groups loved software companies. Financial engineers even created a new type of leverage: loans based on annual recurring revenue (ARR) from software subscriptions. Multiples were seemingly tolerable. But conventionally defined leverage from ARR loans often approached or exceeded 10 times ebitda.
The fad for avant-garde capital structures is over. But according to data from website PitchBook LCD, five of the 10 largest, low-rated leveraged loans due in 2024 and 2025 come from software companies. These include KKR’s BMC Software and Thoma Bravo’s Hyland Software.
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