Blackstone Inc. has reported a decline in the value of a private credit loan extended to Medallia Inc., a software company backed by Thoma Bravo. The loan, which is the largest holding of Blackstone Secured Lending Fund, was marked at approximately 87 cents on the dollar as of June 30, down from 89 cents at the end of the first quarter and 94 cents the previous quarter.

Brad Marshall, Blackstone's global head of private credit strategies, acknowledged during an earnings call that Medallia is "underperforming our expectations," which is reflected in the loan's decreased valuation. An analyst noted that this markdown indicates "some degree of stress" on the asset.

The Blackstone fund's investment in Medallia is valued at around $338 million, down from over $380 million at par. This loan constituted 5.37% of the fund's net assets at the end of June and is also a significant investment within the Blackstone Private Credit Fund, a non-traded business development company (BDC).

Marshall emphasized that the sponsor is focused on improving the situation, but acknowledged the company's underperformance as the reason for the lower valuation. Blackstone has not provided further comments on the markdown, and Thoma Bravo has not responded to inquiries.

In 2021, Blackstone led a $1.8 billion debt package for Medallia to support Thoma Bravo's investment. Medallia specializes in software that manages customer and employee satisfaction surveys. Unlike broadly syndicated loans, which are marked daily due to market liquidity, private credit valuations often lag behind current performance, as disclosures are typically made quarterly.

Last year, Veritas Capital sought to reduce its exposure to the software sector and considered trading out of the loan. Medallia appointed Mark Bishof as its new chairman and CEO in January, following the departure of Joe Tyrrell, who held the position for about a year.

The loan carries an interest rate of 6.5 percentage points over the base rate, with 4 percentage points paid in kind, allowing the borrower to defer cash interest payments until maturity. This structure is common for recurring-revenue loans, which are often utilized by software companies that are still investing heavily in growth.