Potential Thrive Holdings Acquisition of ADT Raises Change-of-Control Questions Across ADT’s Capital Stack

ADT Inc. has reported that it has entered into an agreement to be acquired by investment firm Thrive Holdings in an all-cash take-private transaction valuing the company at an enterprise value of approximately $15.3 billion. Under the terms of the merger agreement, stockholders will receive $10 per share in cash, representing an equity value of approximately $7.6 billion and a 45.6% premium to the company’s unaffected closing share price on Oct. 27. The transaction, if it occurs, is expected to close in the first quarter of 2027, at which point ADT will become a privately held company.

Financing commitments for the transaction include an equity financing commitment from Thrive Holdings or its affiliates and both a preferred equity financing commitment from funds managed by affiliates of Apollo Global Management, Inc. (“Apollo funds”) and a debt financing commitment from Apollo funds.

As reported by Octus, according to sources, the broadly syndicated loan market is Thrive Holdings’ preferred financing route and, if the approximately $9.6 billion in bank financing is successfully arranged, the Apollo-led private credit facility is not expected to be used. As reported by Octus, sources cautioned that discussions around the debt financing are ongoing, and terms are subject to change. One source added that Apollo is also providing $1.65 billion in preferred equity to back the take-private.

Apollo funds sold down their remaining common equity interest in ADT in May. ADT has not disclosed whether any of ADT’s existing common equity holders will “roll over” their equity into an ownership interest in Thrive Holdings.

The proposed acquisition raises questions about the change-of-control protections available to holders of ADT’s outstanding debt. A review of the company’s outstanding debt documents shows that the change-of-control provisions vary across its capital structure, with different triggering events and associated debtholder protections depending on the instrument. ADT’s current capital structure is set forth below.
 

ADT has five tranches of senior secured notes outstanding: 3.375% first-priority senior secured notes due 2027, 4.125% first-priority senior secured notes due 2029, 4.875% first-priority senior secured notes due 2032, 5.875% first-priority senior secured notes due 2033, and 4.875% senior secured notes due 2042 (collectively, the “Notes”).

Each series of Notes contains a “double trigger” change-of-control provision. A “Change of Control Triggering Event” will only occur if both a “Change of Control” and a “Rating Event” occur. If a “Change of Control Triggering Event” occurs, ADT will be required to make an offer to noteholders to purchase the Notes at 101% of the principal amount.

The definition of “Change of Control” is substantially consistent across the five series of Notes. The prong of the Change-of-Control definition that would be applicable to the proposed acquisition of ADT by Thrive Holdings in a merger transaction is the acquisition of beneficial ownership prong. A “Change of Control” will occur if:
 

Whether a “Change of Control” will occur depends on whether the proposed Thrive acquisition results in any person or “group” directly or indirectly acquiring more than 50% of the total voting power of ADT’s voting equity. Based on the merger agreement, Thrive Holdings will acquire 100% of ADT’s common stock through a merger of an indirect subsidiary of Thrive into ADT (with ADT as the surviving entity). The transaction will therefore result in a “Change of Control” under the Notes unless Thrive Holdings is a “Permitted Holder.” Whether the transaction could be structured such that Thrive could be a “Permitted Holder” is discussed, together with the Credit Agreements’ corresponding definitions, below).

ADT has two credit agreements in place: (1) a term loan credit agreement dated Oct. 28, 2025 (as amended, the “TLA Credit Agreement”), under which the company has incurred its term loan A facility, and (2) a twenty-first amended and restated first lien credit agreement dated Oct. 24, 2025 (as amended, the “First Lien Credit Agreement” and, together with the TLA credit agreement, the “Credit Agreements”), which provides for the company’s first lien term loan B facilities and revolving facility.

Both Credit Agreements contain nearly identical “Change in Control” definitions, triggered by any of the following:
 

• Beneficial ownership: Any person or group, other than the “Permitted Holders,” becoming the beneficial owner of more than the greater of (1) 35% of the ordinary voting power for the election of directors of Prime Security Services Borrower LLC (the “Borrower”) and (2) the percentage of voting power held by the “Permitted Holders,” unless the Permitted Holders retain the ability to elect or designate at least a majority of the Borrower’s board.
   
• Cross-triggers: A “Change in Control” occurring under other specified debt documents, which include, in the case of the TLA Credit Agreement, the First Lien Credit Agreement, and in both cases, ADT’s 4.875% senior secured notes due 2032 and due 2042 and certain no longer outstanding indentures and permitted refinancings thereof, to the extent the principal amount outstanding thereunder exceeds $84 million. It is likely that all of ADT’s other currently outstanding notes (due 2027, 2029 and 2033) are effectively covered by the cross default under the credit agreements because of the “permitted refinancings” language. Note that the cross-trigger prong is tied to the “Change of Control” definition in the relevant indenture and does not appear to require that a “Change of Control Triggering Event” (including Rating Event) occur under any relevant indenture.

• Intercompany ownership: Prime Security Services Holdings LLC (“Holdings”) ceasing to own, directly or indirectly, beneficially and of record, 100% of the issued and outstanding equity interests of the Borrower.
   

Similar to under the Notes, it is the beneficial ownership prong that would be primarily implicated by the Thrive transaction. As noted above, this prong captures acquisition of beneficial ownership exceeding the specified voting power thresholds by any person or group other than the “Permitted Holders.” Since Thrive Holdings is contemplated to acquire 100% of ADT’s common stock the transaction would, similar to under the Notes, result in a “Change in Control” unless Thrive Holdings qualifies as a “Permitted Holder.”

The “Permitted Holder” definitions in the Notes and the Credit Agreements follow the same four-part structure. “Permitted Holder” is defined consistently across the Notes indentures (although the entity whose voting stock is tested varies) as:
 

The Credit Agreements’ definitions are substantially similar, but differ from the Notes’ definition, and from each other, in three respects:
 

• Ownership thresholds: The Notes and the TLA Credit Agreement use a 50% threshold in both the holding company prong in clause (iii) and the Permitted Holder Group test in clause (iv). The First Lien Credit Agreement instead uses a more restrictive threshold of the greater of 35% and the percentage beneficially owned by other Permitted Holders.

• Voting rights: Both the Credit Agreements and the Notes require each member of a “Permitted Holder Group” to have voting rights proportional to its ownership interest, but only the Notes allow a Permitted Holder to have more favorable voting rights.

• Holding companies (clause (iii)): Under the Notes and the First Lien Credit Agreement, the holding vehicle may have no material assets other than equity in ADT or the Borrower, as applicable, and their parent entities (and, under the Notes, other Permitted Holders). The TLA Credit Agreement has no material-assets requirement. It also includes any “New Parent” and its subsidiaries, an undefined term that can likely be disregarded as a drafting holdover.

The definition of “Sponsor” in the Notes includes:
 

Both Credit Agreements’ likewise define “Sponsor” to include Apollo-affiliated investment funds and their affiliates other than portfolio companies, together with any person that forms a “group” with them. However, the conditions attached to the group prong (i.e., clause (ii) above) differ:
 

• First Lien Credit Agreement: A person forming a group with the Apollo Sponsors is a Sponsor only if any Apollo Sponsor (x) owns a majority of the voting power and (y) controls a majority of the Borrower’s board of directors. Like the 2032s and 2042s, this adds a board-control requirement. It also refers to “any Apollo Sponsor” owning a majority, rather than the Apollo Sponsors collectively controlling one, which arguably requires a single Apollo entity to hold the majority.

• TLA Credit Agreement: There is no proviso at all. Any person that forms a “group” with the Apollo Sponsors is a Sponsor, whatever Apollo’s share of the group’s voting power.
   

Unlike the Credit Agreements, the Notes’ Sponsor definition includes, as Affiliates of the Apollo funds, Prime Security Services Borrower LLC and each of its Affiliates. Because “Affiliate” captures any person controlling the specified person, a borrower-side argument could be made that the Thrive Holdings acquisition vehicle, once it controls Prime Security Services Borrower LLC, becomes an Affiliate of Prime Security Services Borrower LLC and therefore a Sponsor under the Notes. This argument appears unlikely to succeed. Affiliate status would arise only as a result of the very acquisition being tested, so the acquirer would qualify as a Permitted Holder simply by acquiring the company. That reading would render the beneficial ownership trigger meaningless for any acquirer. This argument is further weakened by the fact that the company is no longer an “Affiliate” of the Apollo funds.

Under both the Notes and the Credit Agreements, the proposed transaction will trigger a change of control unless Thrive Holdings is a “Permitted Holder.” Thrive will not be a “Permitted Holder” unless it is a “Sponsor” under clause (i) of the “Permitted Holder” definition, or part of a “Permitted Holder Group” under clause (iv) of the “Permitted Holder” definition (or, under the TLA Credit Agreement, potentially clause (iii), as discussed below).

Clause (ii) of the “Permitted Holder” definition is not applicable to the transaction, as Thrive Holdings is not a management holder. Clause (iii) of the “Permitted Holder” definition under the Notes and the First Lien Credit Agreement is not applicable because Thrive Holdings is not a holding company with no material assets other than ADT. The TLA Credit Agreement’s clause (iii), however, has no “no other material assets” test and covers any person that directly or indirectly acquires beneficial ownership of 100% of the Borrower’s voting equity, so long as no other person or “group” (other than another Permitted Holder) beneficially owns more than 50% of that person’s voting interests. Once the merger closes, Thrive Holdings will indirectly own 100% of the Borrower, which satisfies the first part. Whether clause (iii) applies therefore depends on the second part: whether any person or group other than a Permitted Holder owns more than 50% of Thrive Holdings’ voting equity. Potentially, depending on the ultimate beneficial ownership of Thrive Holdings (which has not been publicly disclosed), the company could make an argument that Thrive Holdings could be a “Permitted Holder” under clause (iii) of the TLA. However, this issue is likely academic because the TLA Credit Agreement’s cross-trigger would capture a change of control under the First Lien Credit Agreement, the 2032 Notes or the 2042 Notes.

The definition of “Sponsor” is broad in that it includes any person that forms a “group” with the “Apollo Sponsors” so long as (except in the TLA Credit Agreement) the Apollo Sponsors collectively control a majority of the voting power of such group. This raises the question of whether Thrive Holdings could seek to partner with Apollo to acquire ADT.

The Apollo funds exited their equity investment in ADT earlier this year. Even if Apollo wished to reinvest in ADT through Thrive Holdings, it seems unlikely that Apollo would collectively have a majority of the voting power of a group formed with Thrive. Two series of the Notes (the 2032s and 2042s), as well as the First Lien Credit Agreement, add the additional requirement that, in addition to a majority of the voting power, an Apollo Sponsor must control a majority of the board of directors of the company or the Borrower, as applicable.

According to Octus, a source has indicated that Apollo funds have committed to invest $1.65 billion in preferred equity. It is not known whether the preferred stock would have voting rights. Unless the preferred stock being issued to Apollo is designed to convey majority control, which seems very unlikely, Thrive Holdings is unlikely to become a Permitted Holder by forming a “group” with Apollo under the Notes or the First Lien Credit Agreement.

The TLA Credit Agreement is different: it has an unusual “Sponsor” definition, which includes any person forming a “group” with Apollo, without any requirement that Apollo control a majority of that group. This means that Thrive Holdings could be a “Sponsor,” and therefore a “Permitted Holder,” if it formed a “group” with Apollo even if Apollo’s position is very small compared with Thrive’s. Whether Apollo’s preferred equity commitment would make Apollo and Thrive Holdings a group will depend on the terms of their arrangements, which have not been disclosed. In any event, this drafting weakness in the TLA Credit Agreement is likely academic because the TLA Credit Agreement’s cross-trigger would capture a change of control under the First Lien Credit Agreement, the 2032 Notes or the 2042 Notes.

Similarly, for Thrive Holdings to be a member of a “Permitted Holder Group” under any of the instruments, both the proportional voting condition and the ownership threshold described above must be satisfied.

Sub-clause (2) of clause (iv) of the “Permitted Holder” definition appears to measure ownership of the fully diluted voting stock by shares rather than voting power, although it is not entirely clear. Presumably, this was intended to require that no non-Permitted Holder hold more than 50% (or, in the First Lien Credit Agreement, 35%) of the total voting shares by count and that those shares have voting rights proportional to that ownership.

The combined result is that for a “group” formed with Apollo or management to be a “Permitted Holder Group,” Apollo and management would likely need to hold a majority of voting stock by number, with voting rights at least proportionate to that stake (and, under the First Lien Credit Agreement, no non-Permitted Holder could hold a stake greater than 35%). This seems unlikely in the context of the announced transaction.
 

In order to trigger the change-of-control put right under the Notes, there must be both a Change of Control and a “Rating Event.” A Rating Event will occur if:
 

“Rating Agencies” is defined as “(1) each of Fitch, Moody’s and S&P; and (2) if any of Fitch, Moody’s or S&P ceases to rate the [Notes] or fails to make a rating of the [Notes] publicly available for reasons outside of the Issuer’s control, a “nationally recognized statistical rating organization” … selected by the Issuer … as a replacement agency for Fitch, Moody’s or S&P, or all of them, as the case may be.”

The Notes are rated Ba3 by Moody’s and BB by S&P, both of which are below an “Investment Grade Rating” (rating equal or higher than Baa3 by Moody’s and BBB- by S&P). As reported by Octus, Moody’s affirmed its ratings for ADT on Oct. 30, and S&P placed ADT on “CreditWatch with negative implications, reflecting the possibility for a single-notch downgrade” on Oct. 29. Because Fitch does not currently rate the ADT Notes, both Moody’s and S&P would need to downgrade their ratings.

The indentures do not contain a provision affirmatively requiring ADT to select a third ratings agency or providing a time frame for the replacement, and ADT has no obvious incentive to do so. The indentures provide only that if any of the three agencies ceases to rate the Notes or make a rating publicly available for reasons outside of its control, the term “Rating Agencies” will mean a NRSRO selected by the Issuer as a replacement agency. If either (but not both) S&P or Moody’s lowers its ratings, bondholders might argue that ADT needs to select a third rating agency, making it possible for two of three ratings agencies to downgrade their ratings. The “replacement” ratings agency would then presumably need to initiate a rating and then downgrade it prior to the end of the review period in order to trigger a Rating Event.
 

Unlike the Credit Agreements, a Change-of-Control Triggering Event is not a default under the Notes indentures. A Change-of-Control Triggering Event only requires that ADT make an offer to purchase the Notes at 101%. Whether this offer would be attractive to bondholders depends upon the trading price of the various series of Notes at the time of the offer.

The merger agreement provides some clues as to Thrive Holdings’ plans for the Notes. The Notes (other than the Notes due 2027) are referred to in the merger agreement as “Company Rollover Notes” and the “Available Funding Amounts” for the transaction includes “the rollover of the Company Rollover Notes (to the extent such Company Rollover Notes are not required to be purchased or repaid in connection with the Transactions).” In addition, Thrive Holdings is permitted “to reduce the commitments under any Debt Commitment Letter in respect of the Company Rollover Notes upon receipt of the requisite consents in any consent solicitation with respect thereto or the satisfaction of any ratings condition in respect thereof.”

These provisions suggest that it is Thrive Holdings’ intention to keep the bonds outstanding following the merger, either as a result of maintaining the existing ratings or by amending the Notes through a consent solicitation to avoid triggering the change of control. The change-of-control covenant and related definitions can be amended with the consent of a majority in principal amount of the Notes of the relevant series. Thrive Holdings could also seek to commence a change-of-control offer in advance of closing, which has the advantage of firming up the amount of funds needed to close the transaction.

All of the Notes can alternatively be redeemed by paying the “make whole premium,” other than the 2027 Notes, which can be redeemed at par. Given the Notes (other than the 2027 Notes) are referred to as “Company Rollover Notes,” it does not seem likely that Thrive Holdings will elect to redeem these Notes.
 

Unlike under the Notes, a “Change in Control” under the Credit Agreements constitutes an immediate event of default, regardless of the transaction’s impact on debt ratings. Because Thrive Holdings is unlikely to qualify as a “Permitted Holder,” closing of the merger would most likely result in a “Change in Control.” As a result, the Credit Agreements will either need to be repaid at closing or amended to accommodate the transaction.

The publicly filed version of the merger agreement indirectly suggests that the Credit Agreements will be repaid at closing. Although the disclosure schedule listing debt that will need to be paid off at closing (Schedule 5.16 to the Company Disclosure Letter) is not disclosed in the publicly filed version of the merger agreement, the agreement’s rollover concept extends only to the Notes (except the 2027 Notes, as mentioned above), but not to either Credit Agreement. There are also no undertakings in the merger agreement to seek waivers or amendments under the Credit Agreements (unlike for ADT’s receivables financing as discussed below). This suggests that the Credit Agreements are expected to be refinanced at closing.
 

ADT has a receivables financing in place under a Receivables Financing Agreement dated July 16, 2021 (as amended, the “Receivables Financing Agreement”). This agreement has a narrower change-of-control construct than the Credit Agreements and Notes do. Under the receivables financing, a change of control would only be triggered if the borrower were to cease to be wholly owned by ADT LLC, or if ADT LLC were to cease to be (directly or indirectly) wholly owned by ADT Inc. In other words, the change-of-control definition only reaches up to ADT Inc. This means that so long as ADT Inc. survives the Thrive Holdings acquisition as the indirect parent of the borrower, a change of control would not be triggered.

That being said, the Receivables Financing Agreement contains a cross default to certain other debt of ADT Finance LLC, ADT LLC, ADT Inc. or their respective material subsidiaries. If a change of control were to occur under the Credit Agreements, it is likely that this cross default would be triggered, and that a waiver or amendment would be required. There are also other provisions in the Receivables Financing Agreement that may be implicated by the transaction. We note that the merger agreement contemplates that the receivables financing will be backstopped unless an amendment or waiver thereunder is obtained to accommodate the Thrive Holdings transaction. As such, it appears that the parties have identified the risk that the transaction would trigger a default under the receivables financing and that the company will seek a waiver to be able to keep it in place.