THE largest-ever buyout financing arranged by private credit firms would allow healthcare technology company Cotiviti to pay a whopping 50 per cent of the interest on a US$5.5 billion loan with additional debt.

In a major concession to win a watershed deal for the industry, private lenders are discussing giving Veritas Capital and Carlyle Group the borrower-friendly option known as a payment in kind — or the financing of interest with fresh debt — for a maximum of two years, according to people with knowledge of the matter.

The cohort, which includes Apollo Global Management, Blackstone, HPS Investment Partners and Oak Hill Advisors, are looking to provide Cotiviti with the flexibility to maximise its cash flow and reduce near-term interest expenses if needed, said the people, who asked not to be identified when discussing confidential deal terms.

The payment-in-kind (PIK) feature has been a significant advantage for alternative lenders in negotiations with the deal’s sponsors, who have also received competing financing proposals from Wall Street banks.

JPMorgan Chase & Co, which recently set aside US$10 billion of its own balance sheet for direct lending, and Blue Owl Capital are also part of the discussions, the people said.

New multi-billion debt offerings with a PIK component are extremely rare in the leveraged loan and high-yield bond markets, where investment banks would ultimately syndicate the financing. Interest in the financing has been strong from both private credit firms and banks, allowing sponsors to lower the proposed pricing.

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The interest rate on the unitranche loan pitched by the private lenders, which blends senior and subordinated debt into one, is now 6.25 percentage points over the benchmark with a discounted price of 98 US cents on the dollar, the people said. Discussions were previously around a rate of 6.5 percentage points over the benchmark with a discounted price of 97.5 US cents, Bloomberg reported.

If Cotiviti opts to pay interest in kind, the rate would increase to 7 percentage points over the benchmark, the people said. Discussions about the financing are still preliminary and terms could change, they said.

Representatives for Veritas, Carlyle, Apollo, HPS, JPMorgan, Blue Owl and Oak Hill declined to comment. Blackstone didn’t respond to a request for comment.

At US$5.5 billion, the unitranche loan would be the largest-ever provided by private credit firms, according to data compiled by Bloomberg.

Carlyle is in talks to buy a 50 per cent stake in Cotiviti from current owner Veritas in a deal that values the company at nearly US$15 billion, Bloomberg previously reported. BLOOMBERG