Private Credit: Medallia’s Looming Default Will Be Widely Dispersed

NEW YORK--(BUSINESS WIRE)--As widely reported and stated by several of the company’s investors, creditors will likely be taking control of Medallia, Inc. following several years of performance headwinds and the sponsor’s decision not to provide additional equity. Although this represents one of the larger term loans in the direct lending market—at nearly $3 billion—we conclude that KBRA-rated vehicles with exposure, as well as the broader direct lending market, are well positioned to absorb any potential losses.

For example, including Medallia in our Q1 2026 KBRA Middle Market Default Monitor (KMDM)—our forward-looking gauge of borrowers actively in payment default, or those that would likely default without significant sponsor or lender intervention—would increase the KMDM modestly on a dollar basis, to 2.5% from 2.2% in Q1 2026 (see Private Credit: Q1 2026 Middle Market Compendium: Stability Despite March Madness). Our perspective on Medallia is informed by our surveillance of 13 KBRA-rated transactions and vehicles managed by six platforms that have exposure to its debt.

Medallia is a customer and employee experience management software company that collects and analyzes feedback and interaction data through email surveys, social media, and websites. The broader customer experience software sector has been facing increased investor scrutiny. Medallia’s closest competitor, Qualtrics, LLC, has also experienced pressure in the broadly syndicated loan market, with its loan trading down from 100 in February to the mid-80s this month, contributing—as widely reported—to JPMorgan Chase & Co.’s challenges syndicating a new financing.

Thoma Bravo acquired Medallia in October 2021 at a valuation of around $6.4 billion. KBRA has previously noted that software company valuations peaked around this time, contributing to higher starting debt amounts and leverage (see Private Credit: Deep Dive on AI and Software). Direct lenders provided $1.8 billion in debt to support the acquisition, representing an initial loan-to-value (LTV) below 30%. Since then, KBRA has observed Medallia’s term loan balance increase to almost $3 billion—from add-on investments and an approximately $500 million payment-in-kind balance. Over the same period, financial performance and LTV have deteriorated, which could lead to a default and lender-led, out-of-court restructuring. This would result in more than $5 billion of equity value being written off and the equitization of a portion of the cash-pay debt.

Although this potential default would be larger than Pluralsight (see Private Credit: Impact of Pluralsight’s Potential Restructuring Will Be Widely Dispersed and No Effect on Ratings Expected) and would rank among the largest in the direct lending market, we do not expect the potential default of Medallia, in and of itself, to have any direct impact on KBRA-rated debt instruments. This is due to the substantial structural protections within KBRA-rated vehicles—such as portfolio diversification, collateral-based LTV cash sweep triggers, cure mechanics, and structural subordination—which provide cushions that can absorb losses. Though Medallia’s outcome is not expected to directly impact any KBRA ratings, it will likely negatively affect return performance for equity investors in some investment vehicles across the private credit landscape.

Diffuse Exposure

KBRA-rated transactions’ exposure to Medallia includes six funds, five structured credit transactions, and two business development companies (BDC), collectively holding $374 million of the company’s term loan debt. Exposure varies across KBRA-rated vehicles, ranging from around 8% to under 0.5%¹ by vehicle, with a median exposure at 1.4%.

Across the direct lending universe, Medallia’s original and add-on term loans were initially spread across at least 50 credit vehicles managed by 13 platforms. Subsequent amendments indicate that the vehicle count has increased to over 90 through permitted secondary transfers and intra-platform assignments across 15 managers.

Although BDCs hold over $1.9 billion of Medallia’s term loan, this exposure represents only 1.1% of total investments at cost and 0.9% at fair value. At the same time, median exposure is lower at 0.6% and 0.5%, respectively. These findings support our view that within KBRA’s two rated BDCs—FS KKR Capital Corp. and Monroe Capital Income Plus Corp—exposure to a single credit is unlikely to materially impact leverage, access to capital, or other credit metrics (see Private Credit: Business Development Company (BDC) Ratings Compendium: Fourth-Quarter 2025).

Recent Publications

• Private Credit: Q1 2026 Middle Market Compendium: Stability Despite March Madness
• Private Credit: Deep Dive on AI and Software
• Recurring Revenue Loan Metrics Dashboard: Q4 2025
• Private Credit: 2026 Outlook
• Private Credit: Impact of Pluralsight’s Potential Restructuring Will Be Widely Dispersed and No Effect on Ratings Expected

About KBRA

KBRA, one of the major credit rating agencies, is registered in the U.S., EU, and the UK. KBRA is recognized as a Qualified Rating Agency in Taiwan, and is also a Designated Rating Organization for structured finance ratings in Canada. As a full-service credit rating agency, investors can use KBRA ratings for regulatory capital purposes in multiple jurisdictions.

¹ Par of the term loan divided by total assets at cost.

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