Thoma Bravo's Riverbed Said to Discuss Options to Tame Debt

(Bloomberg) -- A group of investors including Apollo Global Management LLC and Vector Capital Group LLC is in preliminary talks with Riverbed Technology Inc. that could lead to easing its $2 billion debt load or asset sales, according to people with knowledge of the situation.

Revenue has been falling for three straight quarters, and Riverbed met with investors at the end of May to discuss the performance of business segments it acquired over the years, the people said, asking not to be identified because the talks are private.

The broad discussions covered a number of ideas to stabilize the business and return it to growth, such as reworking Riverbed’s debts or splitting up the assets and selling them to pay down debt, the people said. Nothing has been formalized or marketed at this time, and advisory firms weren’t involved in the talks, the people said.

Riverbed was acquired in 2015 by private equity firm Thoma Bravo LLC and Teachers’ Private Capital, a unit of the Ontario Teachers’ Pension Plan, in a deal valued at about $3.5 billion. Apollo and Carlyle Group LP are among Riverbed’s term loan lenders, the people said. Vector, which often invests in tech companies, was involved in the initial discussions, the people said. GSO Capital Partners, the credit arm of Blackstone Group LP, holds the bulk of Riverbed’s unsecured bonds.

Representatives for the San Francisco-based company and the investment firms didn’t immediately respond to requests for comment or didn’t have an immediate comment. Thoma Bravo, Apollo and Vector declined to comment.

Riverbed supplies technology services to more than 30,000 clients including Michelin North America Inc., Hilton Worldwide Holdings Inc. and Allianz SE, according to its website. Products include applications, websites, data centers and cloud-based software that support a customer’s digital operations.

Results for 2018 were significantly weaker than expected and it’s not clear the company can hang on to its customers amid changing technology, according to an April assessment by S&P Global Ratings, which rates Riverbed at B- and its senior unsecured notes at CCC.

The meeting between investors and Riverbed was arranged by Credit Suisse Group AG. Discussions centered on a sum-of-the-parts analysis for Riverbed’s segments, including its legacy wide-area network or WAN business, and its network performance management business, the people said. A representative for the bank declined to comment.

Deep Pockets

The WAN optimization market is in secular decline as customers shift to newer SD-WAN solutions, according to S&P. “Deep-pocketed competitors such as Cisco and VMWare have made a meaningful strides in this market already,” S&P wrote.

Riverbed hasn’t drawn on its $100 million revolver, which comes with a first-lien leverage limit of around 5 times debt to earnings if the facility is drawn down by more than 30%, the people said. The leverage ratio stood at more than 7 times when first quarter ended on March 31, they said.

The company’s $1.5 billion first-lien loan due 2022 -- the first major maturity it faces -- jumped more than 3 cents on the dollar to around 86 after news of the discussions, people familiar with the pricing said. The loan traded close to par as recently as last October. Its unsecured 2023 notes hover in the mid-60s, down from 96 cents a year ago.

First-quarter revenue dropped 14% from a year earlier to around $183 million, the people said. Management told investors during an earnings call that Riverbed is cutting costs to offset the declines.

The company has been buying back bonds on the open market at a discount, including $21 million of notes purchased for $14.8 million during the first quarter. Riverbed ended the period with around $246 million in cash after generating $40 million last quarter, the people said.

--With assistance from Davide Scigliuzzo.

To contact the reporter on this story: Katherine Doherty in New York at kdoherty23@bloomberg.net

To contact the editors responsible for this story: Rick Green at rgreen18@bloomberg.net, Adam Cataldo

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