Quest Software sets talk on 1st-lien, 2nd-lien term loans for Clearlake buyout

Quest Software Inc. has set price talk on the $2.71 billion first-lien and $865 million second-lien term loans backing the buyout of the company by Clearlake Capital, according to sources. Commitments will be due Jan. 19.

The seven-year first-lien term loan is offered at a spread of 400-425 basis points over the secured overnight financing rate, with a 0.50% floor and an original issue discount in the range of 99-99.5. The facility will have a 25-basis-point margin step-down at 0.5x inside closing first-lien leverage and a 25-bps margin step-down upon an IPO. Lenders are offered six months of 101 soft call protection.

At initial guidance, yield to maturity is approximately 5.02%-5.67%.

The eight-year second-lien term loan is talked at a spread of 725-750 bps over the secured overnight financing rate, with a 0.50% floor and an OID in the range of 98.5-99. There are hard calls of 102 and 101 in years one and two, respectively. At talk, yield to maturity is approximately 8.16%-8.52%.

Goldman Sachs is left lead arranger on the first-lien tranche and Morgan Stanley is lead arranger on the second-lien tranche. The full arranger group includes BofA Securities, BMO Capital Markets, Barclays, Citi, Credit Suisse, Golub Capital, HSBC, Security Benefit, Wells Fargo, Citizens, Clearlake Capital, Antares, Deutsche Bank, CBAM, BNP Paribas, SVB, UBS and Stone Point Capital.

Rating agencies have assigned first-lien ratings of B-/B2, with a 3 recovery rating from S&P Global Ratings, and second-lien ratings of CCC+/Caa2, with a 5 recovery rating. Corporate ratings are B-/B3, with a stable outlook from both Ratings and Moody's.

Clearlake Capital has agreed to acquire the company from Francisco Partners in a transaction valued at approximately $5.4 billion inclusive of debt, according to a report from The Wall Street Journal at the time the deal was announced Nov. 29, 2021.

The issuer has a covenant-lite first-lien term loan due May 2025 (L+425, 0% Libor floor) and a second-lien term loan due May 2026 (L+825, 0% floor). The issuer was last in the loan market in September 2021 with a $330 million add-on to its first-lien term loan that backed the company's acquisition of OneLogin.

Quest Software was previously part of the software business of Dell Technologies, which Francisco Partners bought out in 2016 for roughly $2 billion.

Quest Software provides integrated infrastructure software for managing systems, data and applications.