AI risks are significantly complicating a $5 billion refinancing deal for ConnectWise, a business software provider owned by private equity firm Thoma Bravo. Lenders are demanding higher interest rates, exceeding 10%, due to concerns about how artificial intelligence will disrupt traditional software businesses. This situation highlights how AI is creating a two-tiered market, where companies perceived as vulnerable to AI disruption face stricter financing conditions.
ConnectWise, which provides tools for managed service providers, is struggling to find willing lenders for its existing debt and a new loan. The company is seeking to refinance roughly $3.2 billion in debt, which includes a term loan B set to mature in 2027, along with another $1.8 billion to be raised. This refinancing is crucial for Thoma Bravo, which acquired ConnectWise for over $3 billion in 2019, and needs to secure the financing package to avoid potential financial strain.
The push for higher yields reflects a broader market sentiment where investors are reassessing valuations for older software companies. Investment banks, including Jefferies, are involved in arranging the deal, but the process has been challenging. Lenders are reportedly asking for interest rates as high as 10.5% to 11% for the refinancing, a significant increase from previous rates. This environment contrasts sharply with the ease of financing seen for AI-focused companies, which are attracting significant capital at favorable terms due to their perceived growth potential.
This specific instance with ConnectWise mirrors the wider trend observed in the private credit market where investors are increasingly scrutinizing and repricing risk for companies in the software sector that are seen as susceptible to AI disruption. The difficulty in securing this refinancing indicates growing caution among lenders regarding the longevity and profitability of legacy software businesses in a rapidly evolving technological landscape.
