Cloudspire Technologies (CSPR) — First-Lien Term Loan
Executive Summary
Demo purchase of $100M face of First-Lien Term Loan at 91.0 (cash investment $91.5M): current yield 11.1%, yield to maturity 15.5%. Recommendation: HOLD. Credit score 38/100 (High risk). Base-case IRR 13.5%, downside 9.9%, severe -3.6%; probability-weighted IRR 10.3% vs a 12% hurdle; weighted P(default) 45%; severe-case valuation recovery 56%. HOLD (do not size yet): Expected-cash-flow IRR (probability-weighted) clears hurdle (10.3% vs ≥ 12.0%); Net leverage within maximum (6.2x vs ≤ 6.0x); Principal protected in severe case (recovery ≥ price) (56 vs 91.0 vs recovery ≥ price).
Investment Thesis
Strong growth and improving margins, but coverage is only ~1.5x and the loan is a single-tranche capital structure with recovery that depends on software going-concern value. Needs diligence on ARR quality and sponsor support before sizing.
The question: Does a 15.5% yield on a rank-1 secured claim compensate for 45% probability-weighted default risk and 44% severe-case loss?
Company Overview
Sponsor-backed cloud-cost-management platform, post-LBO with 6.8x gross leverage and 14% growth. HQ Seattle, WA; Software / Infrastructure Software. FY2025A revenue $480M, EBITDA $96M (20.0% margin); total debt $650M, cash $55M. DEMO DATA
Industry / Market
Cloud optimization tools see budget scrutiny but also tailwinds from cost pressure; hyperscalers' native tooling is a competitive threat.
Historical Financial Performance
| $M | FY2022A | FY2023A | FY2024A | FY2025A |
|---|---|---|---|---|
| Revenue | $310.0M | $360.0M | $420.0M | $480.0M |
| % growth | 16.1% | 16.7% | 14.3% | |
| Direct costs / COGS | $105.4M | $111.6M | $121.8M | $134.4M |
| Gross profit (NOI for real estate) | $204.6M | $248.4M | $298.2M | $345.6M |
| % margin | 66.0% | 69.0% | 71.0% | 72.0% |
| Operating expenses (cash, adjusted) | $161.2M | $187.2M | $218.4M | $249.6M |
| EBITDA (company-adjusted basis) | $43.4M | $61.2M | $79.8M | $96.0M |
| % margin | 14.0% | 17.0% | 19.0% | 20.0% |
| D&A | $18.6M | $21.6M | $25.2M | $28.8M |
| Share-based compensation | $0.0M | $0.0M | $0.0M | $0.0M |
| EBIT | $24.8M | $39.6M | $54.6M | $67.2M |
| Interest expense | $55.8M | $59.1M | $62.4M | $65.7M |
| EBT | ($31.0M) | ($19.5M) | ($7.8M) | $1.5M |
| Taxes | $0.0M | $0.0M | $0.0M | $0.4M |
| Net income (model basis) | ($31.0M) | ($19.5M) | ($7.8M) | $1.2M |
| Capex | $12.4M | $14.4M | $16.8M | $19.2M |
| Working capital & other cash items | $3.8M | $5.0M | $6.0M | $6.0M |
| Free cash flow | ($28.6M) | ($17.3M) | ($5.4M) | $4.8M |
Capital Structure
| Tranche | Rank | Secured | Face value | Rate | Maturity | Mark / price |
|---|---|---|---|---|---|---|
| Revolver | 1 | Yes | $0.0M | S+475bp | 2027-12-31 | — |
| First-Lien Term Loan | 1 | Yes | $650.0M | S+585bp | 2028-04-30 | 91.0 |
Total debt $650.0M (6.8x EBITDA); net debt $595.0M; liquidity $115M; loan-to-value through the target tranche 97%.
Credit Analysis
Net leverage 6.2x, EBITDA / interest 1.46x, FCF / debt 0.7%, DSCR 1.1x, liquidity ratio 1.6x. Score components: Leverage 2/15, Coverage 2/15, Liquidity 7/10, Free cash flow 2/10, Maturity risk 0/10, Margin stability 7/10, Revenue stability 8/8, Asset coverage 1/12, Industry risk 8/10. Score change vs FY2024A (same capital structure): 34 → 38 (Net leverage fell from 7.5x to 6.2x (+2.4 pts, positive); Interest coverage increased from 1.3x to 1.5x (+0.7 pts, positive); Liquidity ratio fell from 1.7x to 1.6x (-0.5 pts, negative); FCF / debt increased from -0.8% to 0.7% (+1.1 pts, positive)).
Debt Maturity Profile
| Period | Debt due | % of debt | Projected liquidity (Base) | Refinancing requirement |
|---|---|---|---|---|
| FY2027E | $0M | 0% | $145M | — |
| FY2028E | $650M | 100% | $175M | $475M |
Risk flag: $650M maturity in FY2028E; only $175M projected liquidity; $475M refinancing requirement.
| Tranche | Matures | Balance at maturity | Cash on hand | Net lev. (test ≤) | Pro-forma coverage (test ≥) | Refi rate | Interest burden after | Result | Resolution |
|---|---|---|---|---|---|---|---|---|---|
| Revolver | FY2027E | $0.0M | $61M | 4.6x (8.5x) | 1.99x (1.20x) | 9.5% | $0.0M | REFINANCING PASS | Repaid from cash |
| First-Lien Term Loan | FY2028E | $630.5M | $78M | 3.9x (8.5x) | 2.40x (1.20x) | 9.5% | $49.6M | REFINANCING PASS | Partly repaid from cash; remainder refinanced |
Base Case
Revenue CAGR 14.0%; FY2030E EBITDA $192M (20.8% margin); trough EBITDA $109M; peak net leverage 5.3x; minimum EBITDA / interest 1.67x; cumulative FCF $203M. No payment default modelled. IRR 13.5%, MOIC 1.42x.
Downside Case
Revenue CAGR 0.7%; FY2030E EBITDA $92M (18.6% margin); trough EBITDA $78M; peak net leverage 7.9x; minimum EBITDA / interest 1.07x; cumulative FCF ($24M). Payment default modelled in FY2028E; target-tranche recovery 90%. IRR 9.9%, MOIC 1.38x.
Severe Downside
Revenue CAGR -4.4%; FY2030E EBITDA $63M (16.5% margin); trough EBITDA $54M; peak net leverage 12.5x; minimum EBITDA / interest 0.66x; cumulative FCF ($171M). Payment default modelled in FY2027E; target-tranche recovery 56%. IRR -3.6%, MOIC 0.91x.
Covenant Analysis
| FY2026E | FY2027E | FY2028E | FY2029E | FY2030E | |
|---|---|---|---|---|---|
| Current metric | 5.32x | 4.43x | 3.60x | 2.78x | 2.04x |
| Covenant | ≤ 8.00x | ≤ 8.00x | ≤ 8.00x | ≤ 8.00x | ≤ 8.00x |
| Headroom | 2.68x (33%) | 3.57x (45%) | 4.40x (55%) | 5.22x (65%) | 5.96x (75%) |
| Status | PASS | PASS | PASS | PASS | PASS |
| FY2026E | FY2027E | FY2028E | FY2029E | FY2030E | |
|---|---|---|---|---|---|
| Current metric | 7.23x | 7.85x | 7.28x | 7.01x | 6.71x |
| Covenant | ≤ 8.00x | ≤ 8.00x | ≤ 8.00x | ≤ 8.00x | ≤ 8.00x |
| Headroom | 0.77x (10%) | 0.15x (2%) | 0.72x (9%) | 0.99x (12%) | 1.29x (16%) |
| Status | PASS | PASS | PASS | PASS | PASS |
Recovery Analysis
If the company defaults, recovery value is $381M (going concern) in the severe case → 56% recovery (44% LGD) on the target tranche; downside 90%. Recovery value = MAX(going concern $381M, liquidation $81M) + cash, less administrative costs; severe case struck at FY2027E.
| Claim (by seniority) | Rank | Claim | Recovery | Recovery % | Loss | Loss % |
|---|---|---|---|---|---|---|
| Recovery value | $381.0M | |||||
| Less: administrative / DIP costs | ($15.2M) | |||||
| First-Lien Term Loan | 1 | $657.5M | $365.8M | 55.6% | $291.7M | 44.4% |
| Total claims | $657.5M | $365.8M | $291.7M | |||
| Equity (residual) | $0.0M | Wiped out | ||||
Investment Returns
| Base Case | Downside | Severe Downside | |
|---|---|---|---|
| Face value / purchase price / cash investment | $100M / 91.0 / $91.5M UNDERWRITING ASSUMPTION | ||
| Cash interest + exit/recovery proceeds | $29.6M + $100.0M | $34.1M + $92.3M | $26.0M + $57.4M |
| Capital gain / (loss) vs purchase price | $9.0M | $1.3M | ($33.6M) |
| MOIC | 1.42x | 1.38x | 0.91x |
| IRR (hurdle 12%) | 13.5% | 9.9% | -3.6% |
Key Risks
- Thin interest coverage: EBITDA / interest 1.46x at FY2025A (EBITDA could fall 32% before coverage hits 1.0x).
- Refinancing: $650M maturity in FY2028E; only $175M projected liquidity; $475M refinancing requirement.
- Downside-case recovery of 90% falls short of the purchase price.
- High leverage: net debt / EBITDA 6.2x (maximum in policy 6.0x).
- Severe-case valuation recovery of 56% is below the 91.0 purchase price: a 44% loss given default.
Key Protections
- First-priority secured position on substantially all assets; 0% of recovery value is senior to us and 97% through our tranche.
- Base-case refinancing tests pass for all 2 maturing tranche(s); 1 are repaid from cash.
- No covenant breach in the Downside case.
- Margin expansion compounding with growth
- ~11.5% yield at 91
Catalysts
- Annual-plan renewals
- Sponsor equity injection
- Add-on acquisition
Due Diligence Items
| Item | Status | Priority | Open question |
|---|---|---|---|
| Historical financials tied to filings | In Progress | High | Do model inputs reconcile to audited statements? |
| Quality of earnings / EBITDA add-backs | In Progress | High | How much of adjusted EBITDA is add-backs? |
| Free cash flow conversion | In Progress | High | What is cash conversion after capex and working capital? |
| Competitive position and management | Issue Identified | Medium | Share trend and management track record? |
| Debt documentation review | Not Started | High | Priming / drop-down protections and baskets? |
| Covenant package and definitions | Not Started | High | Covenant EBITDA definition and headroom? |
| Maturity profile and refinancing plan | Not Started | High | Is the refinancing plan credible at current leverage? |
| Collateral and lien perfection | Not Started | Medium | What assets secure the instrument? |
| Litigation and contingent liabilities | Not Started | Medium | Any material claims ahead of creditors? |
| Guarantees and structural subordination | Not Started | Medium | Which entities guarantee; any non-guarantor leakage? |
| Industry conditions and pricing | In Progress | Medium | Where are we in the industry cycle? |
| Macro and rate sensitivity | In Progress | Low | How does the credit behave at +300 bps? |
Recommendation
HOLD. HOLD (do not size yet): Expected-cash-flow IRR (probability-weighted) clears hurdle (10.3% vs ≥ 12.0%); Net leverage within maximum (6.2x vs ≤ 6.0x); Principal protected in severe case (recovery ≥ price) (56 vs 91.0 vs recovery ≥ price).
| Test | Actual | Required | Weight | |
|---|---|---|---|---|
| ✓ | Base-case IRR clears hurdle | 13.5% | ≥ 12.0% | core |
| ✗ | Expected-cash-flow IRR (probability-weighted) clears hurdle | 10.3% | ≥ 12.0% | core |
| ✓ | Downside IRR stays above floor | 9.9% | ≥ 0.0% | core |
| ✓ | Downside recovery meets minimum (valuation waterfall) | 89.8% | ≥ 60.0% | core |
| ✓ | Base-case refinancing succeeds | PASS | PASS | core |
| ✓ | Entry yield meets minimum | 15.5% | ≥ 9.0% | secondary |
| ✗ | Net leverage within maximum | 6.2x | ≤ 6.0x | secondary |
| ✓ | Covenant headroom (base case, minimum) | 33.5% | ≥ 15.0% | secondary |
| ✗ | Principal protected in severe case (recovery ≥ price) | 56 vs 91.0 | recovery ≥ price | secondary |
| ✗ | No unresolved high-priority diligence | 6 open | 0 open | secondary |
What would change my mind?
- EBITDA declines more than 32% from FY2025A (coverage < 1.0x) — or more than 23% (first covenant breaks).
- The entry price is above 94.4: the base case no longer earns the 12% hurdle (assumed price 91.0).
- Severe-case recovery returns the purchase price only if the distressed valuation multiple is at least 11.4x EBITDA (the severe case assumes 7.0x); the question is how much cushion we want.
- Collateral / enterprise value falls more than 0% from the base-case valuation: the tranche starts to take losses.
- Market access weakens: base-case pro-forma coverage at refinancing is 1.99x vs the 1.20x test, at an assumed 9.5% refinancing rate — a higher spread or lower EBITDA flips the test.
Sources (3)
| Source | Document | Data type | Period | Accession | Doc date | Retrieved | Class |
|---|---|---|---|---|---|---|---|
| CreditIQ demo dataset | Cloudspire Technologies — illustrative financial statements FY2022–FY2025 | Income statement / cash flow | FY2022–FY2025 | — | 2026-03-31 | 2026-03-31 | DEMO DATA |
| CreditIQ demo dataset | Cloudspire Technologies — illustrative capital structure & covenants | Debt schedule | As of 2026-03-31 | — | 2026-03-31 | 2026-03-31 | DEMO DATA |
| CreditIQ demo dataset | Illustrative indicative bid marks (% of par) | Market price | 2026-03-31 | — | 2026-03-31 | 2026-03-31 | DEMO DATA |
Generated entirely from the structured model (inputs → analysis → memo): every figure reconciles to the Excel workbook (see Settings → Reconciliation). Hypothetical terms are underwriting assumptions. Not investment advice.