Home / News / How Spotify solved a $1 billion debt problem that will help it IPO

How Spotify solved a $1 billion debt problem that will help it IPO

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Large buyers TPG and Dragoneer get a pleasant go back, and Tencent will get a work of the streaming track corporate. Everyone glad?

Spotify desires to promote its stocks to public buyers this spring. And as a part of its prep plans, the streaming track corporate has wiped clean up a sticky debt deal, with the assistance of a large Chinese language tech corporate.

The fast model: TPG and Dragoneer Funding Staff, who had led a debt spherical that lent $1 billion to Spotify, past due final 12 months became a few of that debt into fairness, which the corporations then offered to Tencent, the Chinese language web large, in step with other folks conversant in the deal.

The difficult transaction let TPG and Dragoneer earn a pleasant go back on their funding. It additionally allowed Spotify to unravel a probably contentious trade dispute earlier than it tries a singular IPO technique.

Longer model: In 2016, TPG, Dragoneer and Goldman Sachs lent Spotify $1 billion by the use of convertible debt financing, which used to be intended to provide the lenders the power to in the end flip their loans into fairness.

The deal let Spotify bide time earlier than an IPO, however now not an excessive amount of time: The longer Spotify took to move public, the easier the phrases would get for the lenders. Information emerged Wednesday that the corporate had confidentially filed IPO paperwork in past due December.

However since signing that 2016 deal, Spotify, guided by means of its leader monetary officer Barry McCarthy, started to pursue a right away checklist — a in large part untested manner for Spotify to be traded as a public corporate with out elevating any new money.

That extraordinary model of an IPO would permit Spotify to economize on banking charges. It additionally technically didn’t qualify as an IPO beneath the phrases of the debt deal, which supposed lenders wouldn’t be assured the risk to transform their debt into fairness.

Input Tencent, which purchased Spotify inventory from present shareholders as a part of an fairness change and sale the 2 firms introduced in December.

What wasn’t introduced used to be that one of the crucial inventory got here from TPG and Dragoneer, which transformed the debt into fairness at a couple of $10 billion valuation after which offered it to the Chinese language conglomerate at a couple of $20 billion valuation, in step with an individual conversant in transaction.

TPG and Dragoneer nonetheless grasp some Spotify debt, in step with assets conversant in the corporations.

Spotify, Tencent, TPG, and Dragoneer declined to remark.

That deal helped transparent the way in which for Spotify’s direct checklist. Whilst it’s now not transparent that TPG and Dragoneer had any option to power Spotify to transform their debt, it’s within the streaming corporate’s hobby to take away as many query marks as conceivable earlier than its providing, which has already raised eyebrows from regulators.


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