(Bloomberg) -- Elliott Investment Management has agreed to provide fresh liquidity to a former McAfee unit in a deal that will put the fund ahead of other creditors in the repayment line.
The software company called Magenta Buyer moved assets including its intellectual property into a newly created legal entity as part of a transaction announced on Wednesday, according to people familiar with the matter, who asked not to be named because they aren’t authorized to talk about it.
The new unit owns less than 50% of Magenta’s overall assets, one separate person familiar said. The strategy — known in industry parlance as a “drop-down” transaction — allows it to raise new funds by borrowing against the transferred assets. Such transactions — alternately beloved and despised by debt investors for their ability to circumvent standard credit rules — have come to dominate the distressed investing landscape, with lenders increasingly undercutting each other as a way to earn returns.
Elliott got the most favorable terms among lenders, followed by an ad-hoc group of investors who also helped negotiate the deal, the people said. Details of the deal haven’t been publicly disclosed.
Symphony Technology Group purchased McAfee’s enterprise business in 2021, renamed it and split it into two segments — Trellix and SkyHigh. The company, however, fell behind its budget targets and is set to record a drop in revenue of as much as 4% in fiscal year 2024, according to a Standard & Poor’s Ratings report. The debt talks were spearheaded by Elliott, which amassed sizable positions across the borrower’s various debt tranches, including first- and second-lien debt holdings, the people said.
Spokespeople for Elliott and Magenta declined to comment on the details of the transaction. Representatives for Symphony, Trellix and SkyHigh didn’t return emails seeking comment.
As part of the deal, Magenta will launch debt exchanges at below-par prices. Creditors outside of the ad-hoc committee can sign up to the deal by Aug. 22 and will receive a mix of senior and junior ranking debt, but will remain behind Elliott and other members of the group in the repayment line. Creditors who will oppose the restructuring deal will see their loans stripped of certain protections, the people said.
Here are the details of the offer for creditors outside the ad-hoc committee:
The company will also have the ability to extend interest payments on some of the debt over a limited amount of time, via a so-called “payment-in-kind” feature. Magenta will also be able to tap a revolving credit facility maturing in 2028, the person familiar said.
--With assistance from Lucca de Paoli and Eliza Ronalds-Hannon.
(Updates to add context in third paragraph.)
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