Workday LBO would serve as a credit Rorschach test

Workday

21/08/2026 13:00

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
By Pranav Kiran
TORONTO, Aug 20  (Reuters Breakingviews) - Look at this software company: do you see a resurgent AI winner, or a doomed AI loser? Lenders may be about to take the definitive version of this Rorschach test. A mooted mega-deal for HR app developer Workday WDAY.O by Silver Lake could sustain maybe $18 billion of debt, based on Breakingviews calculations. Snagging it on reasonable terms requires painting a picture of rude health as concerns about the future of coding mount.
Before the launch of ChatGPT in 2022, lenders — especially then-triumphant private-credit firms — saw software companies as ideal borrowers, pairing speedy growth with the certainty of recurring subscription revenue. Both are now threatened by high interest rates and AI models that can code up substitute in-house tools.
After an M&A binge, private equity has now pulled back sharply, sending software deals to a decade low. Non-bank lenders have taken a nasty hit from high exposure to the industry, while healthcare has now claimed the top spot in U.S. broadly syndicated loan issuance for the first time since 2015, according to PitchBook.
Lenders seem to be charging software borrowers an AI risk premium. Recent refinancings for Proofpoint, Athenahealth and Cotality saw spreads, or the premium they pay over base rates, increase by between 50 and 150 basis points, PitchBook data show. Similarly rated borrowers in other industries did not need to pay more. Even within software, bids for application software loans have fallen more sharply than debt taken on by infrastructure, data software and cybersecurity firms.
Lender appetite will likely be tested further over the next few years. A big chunk of software loans mature in 2027 and 2028, according to S&P Global, posing a big and challenging wave of refinancing. As those loans come due, lenders will have to decide whether software cash flows remain as dependable as they once appeared.
For now, Workday may look like a more dependable bet. The company’s gross retention rate of subscribers hit 97% in its most recent quarter. That’s above the crucial 95% mark where lenders have been comfortable with leverage ratios just exceeding 5 times EBITDA, according to investment bank Lincoln International. If that holds, Silver Lake should be able to borrow $18 billion. Whether it succeeds will send a clear signal about what it takes to be deemed an AI winner.
             
CONTEXT NEWS
Private equity firm Silver ‌Lake is in talks to acquire Workday, Reuters reported on August 13, citing people familiar with the matter.

(Editing by Jonathan Guilford; Production by Maya Nandhini)
((For previous columns by the author, Reuters customers can click on KIRAN/pranavkiran.t@thomsonreuters.com))