Medallia Inc.: Lenders End PIK Interest Option

Remains Rated CCR 4 And A Major Important Underperformer

April 2, 2026

We've written three times about Medallia already, most recently just a few days ago. The attention is well deserved, though, because i) the company is involved in the software as a service (SaSS) segment around which there are many doubts right now; ii) very large amounts of BDC capital are tied up in the business - nearly $2bn; iii) several different BDCs are lenders - 9 by our count, and iv) matters are going from bad to worse for the borrower and its PE sponsor Thomas Bravo, which might lose all its $5.1bn invested.

The latest news - reported by Bloomberg today - is that the lenders have decided not to allow Medallia to continue to pay interest in kind and will require cash on the barrel. In fact, the company has already made its first all-cash interest payment, says Bloomberg. However, that's not likely to continue:

...The new terms will increase annual debt-servicing costs by about $100 million to nearly $300 million, exceeding the company’s roughly $200 million in annual earnings, according to a person familiar.

People in the know suggest there are two possible ways forward. One, the lenders could take over in a classic-debt for equity swap, or Thomas Bravo could inject more capital into a business that was valued at acquisition at $6.4bn. All debt outstanding, much of it PIK interest that has accumulated and been added to the balance, aggregates $2.8bn. Bloomberg also tells us that the debt is valued as of February 2026 at $0.69 on the dollar. This would suggest "the market" values the company at only $1.9bn.

Now for some speculation. We're guessing Thomas Bravo will walk away and - much like Pluralsight a couple of years ago - the lenders will become owners. The business continues to have some value, and we don't see why the lenders would duck out. For the moment we are assuming any ultimate realized loss will be in the 25%-50% range. No doubt a great deal of interest income will be forgone as some of the loans get converted to equity. Maybe as much as ($100mn) of interest income could be forgone in a debt-for-equity swap.

Let's have a look at the likely principal casualties amongst the public BDCs. First there is Blackstone Secured Lending (BXSL) which has advanced $393mn - all in first lien debt. A loss of half its income would amount to about ($20mn) per annum. In 2025, that would have reduced the BDC's NII by (1.4%). a 50% write-down, net of the unrealized loss already taken, would lead to an incremental write-down of ($111mn), or ($0.48) a share. In the last 3 years BXSL only had a material net realized loss in 2025 and for only ($22mn). This realized loss, if booked, would be just shy of ($200mn). This would be the biggest credit reverse the folks at BXSL have suffered since going public. By the way, Medallia is the largest single exposure on BXSL's books according to Solve's records, where they show the top 10 borrowers for every BDC. If you're a subscriber to Solve, it's a list worth examining.

The situation is even worse for the other Blackstone BDCs with three times more exposure. That's non-traded Blackstone Private Credit, which invested $1.1bn in the very same loans. On the other hand, let's remember the private BDC is something of a beast, with a portfolio valued at $82bn. Any loss will be like a bee sting - painful, but likely no worse.

Also taking it on the chin is FS-KKR Capital (FSK) - a BDC much more accustomed of late to big reverses than BXSL. The BDC has advanced $233mn and is subject to the same loss assumptions as they're invested in the same loans as the Blackstone BDCs. We'll cut to the pro-forma bottom line and estimate that FSK's net asset value per share (NAVPS) could drop from $20.89 to $20.64 as a result of this setback - a (1.2%) drop. The income loss, though, could be a little harsher. Medallia is the 10th largest single company exposure in FSK's portfolio.

Otherwise, the only other BDC with meaningful exposure is HPS Corporate Lending - a non-traded fund. Monroe Capital (MRCC) - about to sell its portfolio to a sister non-traded BDC - has a tiny amount outstanding which is not worth discussing.

Of course, this is just one more way station in the Medallia story. We'll be writing again shortly when the proverbial next shoe drops.