JPMorgan is weighing a smaller Qualtrics debt sale after banks held over $5 billion in loans

JPMorgan $JPM Chase is exploring a revised financing plan for Qualtrics International, the Silver Lake-backed survey software maker, after the banks that underwrote an earlier deal were left sitting on more than $5 billion of loans this year, according to Bloomberg.

Under one scenario, the offering would be divided approximately equally across the high-yield bond and leveraged loan markets, at roughly $2 billion apiece, according to Bloomberg. The financing backs Qualtrics' acquisition of Press Ganey Forsta. Bloomberg also reported that lenders could receive enhanced covenant protections, modeled on terms seen in other recent software financings.

Qualtrics walked away from a $5.3 billion debt deal months ago after AI-related fears triggered a broad selloff across software names and made prospective lenders unwilling to participate, according to Bloomberg. The banks that committed debt for the deal last October ended up funding the purchase. At the time, they expected more than $500 million in paper losses, according to Bloomberg.

The JPMorgan-led group is considering a new sale to investors that would use third-quarter earnings to draw interest, according to Bloomberg. Representatives for JPMorgan and Silver Lake declined to comment to Bloomberg.

The company generated $718 million in second-quarter revenue, a slight decline from $720 million in the preceding quarter, according to Bloomberg. Adjusted EBITDA came in at $332 million, a gain of roughly $74 million compared with $257.8 million in the year-ago period.

Qualtrics’ outstanding 2030 loan was changing hands at around 84 cents on the dollar as of Wednesday, according to Bloomberg. The debt has hovered around the 85-to-90-cent range for weeks as buyers have gradually re-engaged with software-sector loans, though that remains well below the levels close to face value where the loan began the year.

Other software firms, among them Proofpoint and Gainwell Technologies, found they had to sweeten their deals significantly — offering improved terms to get creditors to support multi-billion-dollar refinancings in recent months, according to Bloomberg. In exchange, creditors won caps on additional leverage and covenants barring the transfer of assets away from their collateral pools.

The Qualtrics deal comes as distressed U.S. leveraged loans have climbed to levels not seen since the early months of the pandemic. JPMorgan strategists wrote this month that loans trading at or below 80 cents on the dollar totaled $139.8 billion, nearly double the level a year earlier.

Technology made up 39% of that distressed volume, or $54.4 billion, more than any other sector. Software providers face more than $100 billion of maturing debt, with concerns that advances in artificial intelligence could disrupt their businesses.