JPMORGAN HALTS $5.3BN QUALTRICS DEBT DEAL AS AI FEARS CHILL DEMAND / THE FINANCIAL TIMES

JPMorgan halts $5.3bn Qualtrics debt deal as AI fears chill demand

Bank along with Wall Street peers risk a high-profile ‘hung deal’ if they cannot revive transaction

Michelle Chan and Eric Platt in New York

JPMorgan began marketing Qualtrics’ debt to high-yield bond and leveraged loan investors in late February © Michael M. Santiago/Getty Images

JPMorgan Chase and Wall Street banks suspended more than $5bn of debt sales for customer service software group Qualtrics amid investor scepticism over whether its business model can withstand AI disruption.

The decision to pause the financing is a setback for Silver Lake and the Canada Pension Plan Investment Board, which bought Qualtrics for $12.5bn in 2023, and for JPMorgan and a group of Wall Street banks that had agreed to fund its latest deal.

Investors will be scrutinising whether JPMorgan can launch the $5.3bn transaction before Qualtrics needs to wire cash to close its $6.75bn acquisition of healthcare technology company Press Ganey Forsta. 

If it does not, the bank and nearly a dozen other lenders who had agreed to provide so-called bridge financing will be forced to come up with the capital themselves, known in industry parlance as a “hung deal”.

JPMorgan informed investors on Tuesday that the debt sales would be halted until further notice, and that it might relaunch the deal if market conditions change, according to people familiar with the matter.

“Software is a tough sell right now,” said a junk bond trader who was notified of the deal suspension on Tuesday.

“It wouldn’t be a deal that we want to participate in anyway.”

JPMorgan and Qualtrics declined to comment. 

Silver Lake did not immediately respond to a request for comment.

The bank began marketing the debt to high-yield bond and leveraged loan investors in late February, but it failed to secure sufficient demand owing to concerns over Qualtrics’ future revenue and that the Press Ganey acquisition was overvalued, the trader said.

Qualtrics, which helps companies such as Delta Air Lines and Hilton Worldwide obtain customer and employee feedback through automated online tools, is seen by investors as vulnerable to disruption by new AI technologies.

Qualtrics’ deal for Press Ganey was announced in October before investors began to sour on enterprise software businesses.

Qualtrics’ existing $1.5bn term loan had fallen sharply in value this year as new AI models from OpenAI and Anthropic have been released, with the debt changing hands this week at roughly 86 cents on the dollar, according to S&P Global.

Alongside JPMorgan, 10 other banks have made debt commitments for the acquisition, including BMO, Citigroup, Deutsche Bank, Goldman Sachs, KKR Capital Markets, Mizuho, Morgan Stanley, RBC, UBS and Wells Fargo.

While those banks committed to finance the deal, they typically look to bring in outside investors to fund the transaction before it closes, earning lucrative advisory and syndication fees in the process.

But if they are unable to raise that capital, they must hold the deal on their own balance sheets, risking losses if they decide to dump the loans in the market at a discount.

Bloomberg earlier reported on JPMorgan’s decision to pause the debt sale.