Clearlake Capital Group faced a pressing challenge as it sought to acquire Dun & Bradstreet Holdings Inc., a historic data and analytics provider. With limited time to secure financing for the leveraged buyout, the firm opted for a $5.75 billion, 364-day bridge loan from banks, bypassing the traditional debt package that would typically take weeks to arrange.

This bridge loan allowed Clearlake to demonstrate its financial capability to close the deal quickly. However, the firm now needs to secure more permanent financing, banking on the continued demand for risky debt. The current scarcity of buyouts may facilitate finding alternative funding sources, as there is significant capital available for such financing.

Recent leveraged buyout (LBO) transactions, like Novolex Holdings’ acquisition of Pactiv Evergreen Inc. and Clayton Dubilier & Rice’s investment in Sanofi SA’s consumer health unit, have been well-received despite market volatility. Nonetheless, the risk lies with Clearlake, as banks are not obligated to find long-term funding to alleviate their risk. If Clearlake relies on the short-term loan, it could face escalating borrowing costs.

This bridge loan is atypical for buyout financing. Normally, banks underwrite the debt, guaranteeing terms such as interest rate caps and managing the risk of selling the debt to investors. In this case, Clearlake must explore alternative financing options, as failing to do so could lead to expensive repayment after the loan term ends.

While many expect Clearlake to secure the necessary financing, some deals are struggling to attract interest due to economic concerns, including the impact of tariffs from the Trump administration. Clearlake acted swiftly to secure Dun & Bradstreet, entering exclusive negotiations on March 21 and announcing the deal shortly after, as other bidders, including Veritas Capital Fund Management, were also interested.

The urgency of the situation meant that a traditional LBO financing process, which requires thorough due diligence, was not feasible. Instead, Clearlake settled for the bridge loan, which comes with no price caps and high fees. The financing involved several banks, including Morgan Stanley, Goldman Sachs, and JPMorgan Chase, among others, although JPMorgan's role was advisory rather than financial.

Clearlake anticipates completing the acquisition of Dun & Bradstreet in the third quarter. A 30-day "go-shop" period is also in effect, allowing other potential bidders to make competitive offers. The outcome of this deal will depend on Clearlake's ability to secure long-term financing and navigate the risks associated with the bridge loan.