ARR vs EBITDA leverage multiples in software direct lending deals
To preface, I'm an undergrad interested in the private credit field. I'm curious as to what considerations lenders make when considering ARR vs EBITDA leverage multiples. I've seen ARR deals like Pluralsight in the news that were overleveraged and it so I imagine lenders may have to pare back their aggression on high-growth SaaS companies. But it would be super helpful if anyone could share perspective on how lenders might think about being more aggressive on an EBITDA deal vs. ARR and general differences in the approach to structure/covenants, and thinking about the investment as a whole. Thanks!
Covenants: Total senior debt / ARR | minimum liquidity threshold.
Debt facility: 1% amort | SOFR + spread | 4-7 yrs
In software deals, you usually don’t use EBITDA, you use CEBITDA to capture the impact from deferred revenue.
Can you elaborate how you get to Cash EBITDA + deferred revenue? Thanks
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