Veritas’ Cohesity Deal Promises 62.5% Debt Paydown but Risks Leaving Behind Weakest Businesses in Overlevered Structure; Lenders Fear Cohesity Stake Drop-down

Reporting: Robert Schach Global enterprise software provider Veritas Technologies’ term loans jumped on the news that the group intends to sell its data protection business to Cohesity for $2.5 billion of cash and a 20.9% stake in the combined entity, which should result in an up to 62.5% paydown of Veritas’ debt. But the term loans have started to give up some of their gains as lenders digested the deal. While Veritas has disclosed few details, lenders are concerned that the remaining debt will likely be over 10x levered and backed by the group’s weakest assets, and that sponsor The Carlyle Group could shift the stake in the Newco out of Veritas’ restricted group via a drop-down transaction to try recoup some of its original investment, sources said. Veritas’ data protection segment, which is the group’s best asset, accounts for 70% of group revenue. According to management, it has slightly lower margins than the remaining parts, given that it includes the hardware business, which is inherently lower margin than software, which means the data business likely generated around 65% of group EBITDA, sources estimated. That implies that out of Veritas’ $410 million LTM September 2023 adjusted EBITDA, the data protection[...]