(Bloomberg) -- Private credit lenders and banks are competing to provide debt financing for a potential buyout of education software provider PowerSchool Holdings Inc., according to people with knowledge of the matter.

Ares Management Corp., HPS Investment Partners, Blackstone Inc. and Blue Owl Capital Inc. are among the direct lenders seeking to provide a roughly $3 billion debt package for the deal, said the people, who asked not to be identified discussing a private transaction.

One version of the financing includes a $2.4 billion funded term loan, a $500 million delayed-draw term loan and a $300 million revolver, according to one of the people. Competing offers from banks include a smaller amount of debt as well as preferred equity, a separate person said.

Folsom, California-based PowerSchool has drawn takeover interest from private equity firms including Warburg Pincus and Bain Capital, Bloomberg previously reported. Financing terms are not finalized and may change, the people said.

Representatives from Ares, Blackstone, Blue Owl and HPS declined to comment. PowerSchool said in an emailed statement that it doesn’t comment on rumors and speculation.

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The amount of funded debt private lenders have discussed providing would be well over seven times PowerSchool’s earnings, the people said, a level banks may have a hard time matching because of regulatory constraints. Preferred equity is often used to fill that gap in bank-led financings.

PowerSchool is engaging with the buyout firms and has formed a special committee of its board of directors, which is working with an investment bank. Private equity firms Onex Corp. and Vista Equity Partners own about 63% of PowerSchool’s outstanding shares, according to data compiled by Bloomberg.

Ares previously served as the sole lender for an incremental senior secured credit facility. Barclays served as lead on PowerSchool’s amended and extended $840 million first-lien term loan last year. 

The financing offers come at a time when leveraged buyouts have remained depressed, with the few deals that are advancing drawing stiff competition between banks and private credit lenders. That’s led private credit firms to cut pricing and sweeten terms.

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Recently, a group of direct lenders offered EQT AB a loan for its buyout of supply chain risk-management software provider Avetta LLC at one of the cheapest rates on record. Private credit lenders are also in talks to provide $735 million of debt to support Vista Equity Partners’ acquisition of Model N that equates to about eight times earnings, a relatively high level compared to other leveraged buyouts.

--With assistance from Gillian Tan.

(Adds context about existing debt to eighth paragraph.)

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