(Bloomberg) -- EQT AB is tapping a group of direct lenders for around $1 billion of debt to help finance its acquisition of Avetta LLC at one of the cheapest rates seen in the private credit market, according to people with knowledge of the matter.

The new loan is expected to price at 4.5 percentage points over the benchmark rate, the people said, asking not to be identified discussing a private transaction. That would mean a 1.25 percentage point cut on the margin compared to the company’s existing credit facility, which it received about six months ago, according to filings. 

The quick turnaround in pricing comes as the $1.7 trillion private credit market’s biggest competitor — Wall Street banks — have benefited from a resurgence in the leveraged loan market. To avoid losing market share to institutional investors that buy leveraged loans, direct lenders have been agreeing to slash prices on sought-after deals. Competition between private credit firms has also intensified because of the lack of new leveraged buyouts.

Read more: Wall Street Reclaims $16 Billion of Deals Lost to Private Credit

Ares Management Corp., AllianceBernstein Holding LP, Golub Capital and Blue Owl Capital Inc. are in discussions to lend the money, the people added. The debt deal includes a unitranche, delayed-draw term loan and revolving credit facility, the people said. 

Discussions are ongoing and details could still change, the people said. The loan is being discussed at a discounted price of 99 cents on the dollar, one of the people added.

Representatives for EQT, Avetta, Ares, and Blue Owl declined to comment. Representatives for AllianceBernstein and Golub didn’t respond to requests for comment.

Recent private credit deals have seen pricing of around 5 to 5.5 percentage points over the benchmark rate, according to data compiled by Bloomberg News. Last year, that level could exceed 7 percentage points over the Secured Overnight Financing Rate.

Borrowing Costs

Despite potentially snagging one of the cheapest private loans, Avetta’s leverage — a ratio of debt compared to earnings — would be around 7 times, the people said. 

That is relatively high compared to other deals with low borrowing costs, such as Blackstone Inc.’s acquisition of Rover Group, which had leverage of around 4 times and saw borrowing costs of 4.75 percentage points over the Secured Overnight Financing Rate. Iris Software’s recent refinancing priced at the same level. 

EQT is paying about 24 times Avetta’s projected 2024 earnings before interest, tax, depreciation and amortization of $125 million — or about $3 billion — to buy the supply chain risk-management software provider, Bloomberg earlier reported. 

The loan-to-value ratio is relatively conservative at roughly 25%, meaning EQT will put in a significant amount of equity, the people said. 

Read more: EQT Agrees to Buy Welsh Carson’s Compliance Risk Firm Avetta

EQT announced its plan to acquire Avetta earlier this month from Welsh Carson Anderson & Stowe. The deal is expected to close in the coming months, according to the announcement. 

--With assistance from Davide Scigliuzzo.

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