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PIK to nonaccrual to restructuring: Medallia and what to watch as BDCs file Q1

Jack Lester-Pearson, Vice President - Private Credit and Deal Origination

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Software company Medallia is undergoing a major restructuring that threatens to wipe out Thoma Bravo’s $5 billion equity stake and hand control to its private credit lenders, who hold $2.8 billion of debt. The case is a live test of how complex private credit workouts play out and what 2021-vintage lending standards have left behind.

Thoma Bravo took Medallia private in 2021 at a $6.4 billion valuation on a loan underwritten to ARR with PIK flexibility. Lenders recently refused to extend that PIK relief, lifting annual debt service by roughly $100 million to $300 million — well above the company’s $200 million earnings. Majority lender Blackstone Private Credit Fund moved its position to nonaccrual at the same time.

Medallia is a prominent casualty of the 2021 vintage: deals underwritten at peak valuations with loose covenants and PIK flexibility. With the maturity wall stretching through 2028 and more than $3 billion in nonaccrual loans coming due by 2027, the workout will set early precedent for the private credit restructuring playbook.

As BDCs file Q1, here is where the next Medallia tends to surface:

  • Recent PIK or nonaccrual transitions: Octus identified 27 borrowers that switched from cash interest to deferred interest in Q4 alone, against more than 250 currently on nonaccrual. PIK is not always a precursor to distress, but newly adopted on a 2021-vintage software credit, it warrants attention.
  • Lagging software marks: Software sold off sharply in Q1 across public equities and debt pricing. BDCs carry more than 30% exposure to the sector. Whether Q1 marks come in above or below public comps will move the dial — equities are already pricing in a step down, and managers who hold marks risk a credibility gap that compounds into Q2.
  • Divergent fair-value marks: When multiple BDCs hold the same loan and mark it more than 5 points apart, the gap matters. In Medallia, the divergence was visible several quarters before the restructuring — one lender held the position at 96 while another had already moved to 87.
  • Second extensions and quiet waivers: A second extension is typically an early sign of structural stress. Same logic applies to covenant waivers on loans that still read “performing” on paper — these disclosures surface in the footnotes well before the situation goes public.


Medallia is not an exception. The next ones may be sitting in plain sight: already PIKing, marked optimistically, and held by managers who haven’t yet decided to move.

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