Thoma Bravo and its lenders have tapped restructuring advisers as portfolio company Medallia heads toward what could be among private credit's largest-ever loan workouts.

The experience management software platform and its sponsor are working with Kirkland & Ellis, while the lender group has retained Latham & Watkins, according to 9fin.

The engagements follow a months-long standoff between Thoma Bravo and a lender group led by Blackstone, which holds roughly $1.5 billion of Medallia's debt and is driving the restructuring discussions.

Lenders, which also include Apollo and KKR, have so far refused to extend further leeway to the business and have insisted that Thoma Bravo contribute additional equity.

A Blackstone spokesperson said the firm is focused on working with the sponsor, other lenders, and management on a turnaround plan for the company.

After Medallia's payment-in-kind arrangement (from the original credit agreement) expired at the end of 2025, the company's annual debt service jumped by $100 million to nearly $300 million. With $200 million in annual earnings, available cash flow is well below the level required.

The loan now accrues interest at its original all-cash rate of S+600. Multiple lenders have placed the credit on non-accrual as of the end of the first quarter, and most have marked it below 70 cents on the dollar.

It's something of an 'I told you so' moment for critics of ARR-based lending, who argued that underwriting based on a recurring revenue metric, instead of EBITDA, was risky and would eventually lead to pain for companies that couldn't actually support such leverage.

Medallia's original $1.8 billion loan that financed the 2021 take-private was an ARR-based arrangement, with the PIK option baked in from the start because the company could not generate sufficient cash to support conventional interest payments.

The idea was that Medallia would quickly grow into its capital structure and comfortably cover cash interest payments when the PIK period ended. While the business did enjoy double-digit topline growth, steep marketing spend to fend off rivals like Qualtrics meant EBITDA didn’t keep up.

The loan balance has now reached roughly $2.8 billion, partly from accrued PIK interest and partly from additional financing for add-ons (including Thunderhead and Mindful).

The path forward is likely to be one of two available options: a debt-for-equity swap that would hand the company to creditors and mark a roughly $5.1 billion loss for Thoma Bravo, or a fresh equity injection from the sponsor.

The question is whether Thoma Bravo thinks there's anything worth saving at this point (i.e. throwing good cash after bad), particularly in a situation where cash flow is still so far below debt service needs.

In a March CNBC interview, Thoma Bravo co-founder Orlando Bravo defended the firm's portfolio against AI-related market and valuation concerns. "What [investors] see for the most part is our companies are crushing it," he said. "Our companies are incredibly positioned to be winners in the agentic era."

But, even he admits that the Medallia situation has taken a turn for the worse. Later in the same interview, he said his firm "made a mistake" on Medallia by modeling too high a growth rate and paid "too much" for it. He added that his firm's equity in the business "has been impaired for a long time."

Prior to the latest restructuring discussions, the firm had marked its position at less than 0.2x its invested capital, according to sources familiar with the matter.

Also announced today, Thoma Bravo is winding down its growth equity platform and refocusing efforts on its core buyout strategy. Launched in 2021, the growth effort raised a single $1.8 billion fund. The strategy's two co-heads, Ross Devor and Robert Sayle, have left the firm.

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