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Bill comes due for money-losing tech companies that borrowed billions

With the help of lenders with looser standards, firms borrowed against the promise of runaway growth that didn’t materialize. Now tripwires to turn a profit are kicking in.

Private credit funds eager to put their money piles to work replaced a bedrock of lending — cash flow is king — with a Silicon Valley embrace of quick growth, sticky subscriptions, and roaring stock markets. Firms started out offering to lend companies $2 for every dollar of recurring revenue — usually software subscriptions — but by 2022, that was closer to $4, said Ben Rubin, a partner at Proskauer who specializes in private credit deals. Traditional underwriting standards held on as long as they could, and as recently as 2021, a credit analyst at S&P could call ARR lending a “platypus… so rarely seen that most people know little about it.” At the end of 2019, Thoma Bravo turned heads with the largest ever such loan, $825 million to finance the buyout of an online learning-software company.

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