Morgan Stanley-Led Group Fund Loan for Software Deal

(Bloomberg) -- A group of lenders led by Morgan Stanley had to use their own money to fund a $1 billion leveraged loan they had agreed to provide for Cornerstone OnDemand Inc.’s acquisition of Saba Software Inc., according to people familiar with the matter.

The loan, which was expected to be distributed to third-party investors, never launched for general syndication amid a freeze in the U.S. leveraged loan market in March due to the coronavirus pandemic, said the people with knowledge of the matter who asked not to be named because they are not authorized to speak publicly.

A representative for Morgan Stanley declined to comment. A representative for Cornerstone OnDemand didn’t respond to requests for comment.

The loan is the largest among those with junk ratings that banks have been forced to take on their books since the March credit crunch to allow planned acquisitions to close. In some cases, banks have already been able to offload the debt as the market gradually reopened.

The new issue market for risky corporate loans started to see some signs of life in early April after an almost one-month hiatus. Activity has been slow since then, and many of those transactions have been deals meant to provide companies with additional liquidity so they can weather the shutdown. Those have included bond-like yields and call protections.

Read more: Leveraged loan market restarts in April for liquidity lifelines

The term loan provided to Cornerstone OnDemand was boosted to just over $1 billion from $985 million to make up for a bigger original issue discount.

The acquisition’s total value was reduced to about $1.3 billion at closing from about $1.4 billion at the time of the announcement, according to a company filing. Upon completion, the maturity date of the company’s 5.75% convertible notes due 2021 was extended to March 17, 2023.

Morgan Stanley is administrative agent on the loan, which matures in seven years. Additional underwriters party to the debt commitment letter include Credit Suisse Group AG, Bank of America Corp., Deutsche Bank AG and Jefferies Financial Group Inc., according to a filing.

Credit Suisse, BofA and Deutsche declined to comment. Jefferies didn’t respond to a request for comment. The debt was funded on April 22, allowing the acquisition from an affiliate of Vector Capital to close, according to data compiled by Bloomberg.

Moody’s Investors Service assigned a B1 rating to Cornerstone OnDemand’s loan, and S&P Global Ratings gave it a B rating.

Cornerstone OnDemand is a learning and people development software-as-a-service (SaaS) provider. Private equity firm Silver Lake Management LLC acquired a minority stake in the company, according to November 2017 statement. Saba Software is a provider of both learning and performance management and recruiting software systems.

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