Thoma Bravo is inching closer to a deal that would transfer control of software provider Medallia to its lenders, effectively erasing $5.1 billion tied to the private equity firm.

Medallia is an AI-driven experience management platform that helps companies capture, analyze, and act on customer and employee feedback in real-time. It gathers data from surveys, social media, mobile, and voice/chat, using AI to identify sentiment and trends to reduce churn and improve engagement. Thoma Bravo purchased the company for $6.4 billion in 2021.

Reuters reports that Medallia has been under recent pressure as investors reassess software assets amid worries that artificial intelligence could reduce demand for some services. 

On a February conference call, Blackstone's private credit chief Brad Marshall said Medallia had been "underperforming, not because of anything related to AI, but due to what we believe to be execution-driven issues.” 

"We also expect there to be discussions around the capital structure," he added.

Earlier this week, Blackstone’s (NYSE:BX) latest regulatory filing revealed that the firm's private credit fund experienced increased pressure on its portfolio due to markdowns of Medallia, as well as a dental-implant company Affordable Care (ACI Group Holdings).

Medallia was marked down to 69.8; as a result, the fund saw a spike in non-accrual loans in April.

The company has been carrying about $3 billion in debt inside both traded and non-traded vehicles owed to lenders that include Blackstone (NYSE:BX) , KKR (NYSE:KKR), Apollo Global and Antares Capital, Reuters reported.

FS KKR Capital Corp. marked the debt at 79 cents on the dollar in its latest quarterly filing, and Apollo Debt Solutions valued it at 74 cents.

The software-as-a-subscription model that powered a multi-decade bull market depended on two assumptions: growing seat counts and annual price increases. AI threatens both. Software multiples have been cut in half, and for the first time in decades, price-to-earnings ratios for software stocks sit below the broader market multiple.

Private equity poured trillions into software companies between 2018 and 2022. Every single one of those deals is now underwater "and probably by a lot," according to Steve Eisman, the fund manager who called the subprime crash before anyone wanted to hear it.

Blackstone, KKR, and Carlyle Group ( CG ) were all down 25% or more in Q1. Oaktree's Howard Marks warned last week that private credit underwriting standards were "too low and setting the scene for a correction."