Clearlake Gambles on Risky Debt in Rush to Buy Dun & Bradstreet

(Bloomberg) — Clearlake Capital Group was in a tight spot. It needed to move fast as it closed in on a deal to buy Dun & Bradstreet Holdings Inc., one of Wall Street’s oldest providers of data and analytics, but lining up a traditional debt package to fund the leveraged buyout would have taken weeks.

With just days to get the financing in place, the private equity firm took what it could get on short notice — a $5.75 billion, 364-day bridge loan from a group of banks that offered none of the guarantees that usually come with an underwritten LBO, according to people with knowledge of the matter, who asked not to be identified discussing private information.

The loan helped Clearlake win the deal since it showed it had the cash to close the acquisition, said the people. But it must now get more permanent financing in place, and is wagering a bet that demand for risky debt will remain strong, they added.

A scarcity of buyouts may make it easier to find willing parties to replace the bridge loan. And, to be sure, there’s no shortage of dollars chasing that type of financing lately. 

LBO transactions that have come to market recently — including for Novolex Holdings’ purchase of Pactiv Evergreen Inc., and Clayton Dubilier & Rice’s purchase of a stake in Sanofi SA’s consumer health unit — have been mostly well-received despite a market rout.

Still, the risk is all on Clearlake. Banks aren’t obliged to find longer-term funding to take the risk off their books, and if Clearlake used the short-term loan, the borrowing costs ramp up over time, they added.

A representative for Clearlake didn’t respond to requests for comment.

This form of bridge loan isn’t your typical buyout financing. 

Banks usually underwrite the debt, which means they guarantee certain terms including so-called caps that put a ceiling on the maximum interest rate that a company would have to pay on a junk bond. They also bear the risk of offloading that debt to leveraged-loan or bond investors, and can be stuck holding loans on their balance sheets, tying up much-needed capital, if they can’t. 

At the same time, debt sold at firesale discounts can erode the fees that banks earn on such deals, or even result in losses.

In this case, Clearlake would have to seek options for alternative financing. In an extreme scenario where that doesn’t happen, it would be forced to repay the loan after the 364 days is up, at rates that would be expensive, the people said. 

Few expect that to happen since banks and private credit firms are vying to win the few buyout financings up for grabs. But it’s a risk nonetheless, and some deals are struggling to attract demand amid concerns that tariffs imposed by the Trump administration will impact certain companies or hurt the economy.

Clearlake didn’t want to wait any longer to make its pitch, as other potential bidders, including Veritas Capital Fund Management, were circling Dun & Bradstreet.

The firm entered exclusive talks about Dun & Bradstreet on Friday, March 21, and announced the deal the following Monday. A traditional LBO financing would have required more time for banks and private credit firms to perform due diligence before committing the debt, the people said. Instead, a 364-day bridge loan with no price caps and hefty fees was the best they could do on such short notice, they said.

Ultimately, Clearlake listed a number of banks — Morgan Stanley, Goldman Sachs Group Inc., JPMorgan Chase & Co., Rothschild & Co., Barclays Plc, Citigroup Inc., Deutsche Bank AG, Banco Santander SA and Wells Fargo & Co. as financial advisers, and said Ares Management Corp.’s credit arm and HSBC Holdings Plc also participated in the financing. Some of the people with knowledge of the transaction said JPMorgan only participated in an advisory role and not in the financing.

A representative for HSBC didn’t respond to requests for comment, while those for all others involved declined to comment. 

Clearlake expects its Dun & Bradstreet purchase to close in the third quarter. There’s also a 30-day “go-shop” period in effect during which another suitor may arrive with a competitive bid.

–With assistance from Michelle F. Davis.

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