It helped Mexico track down El Chapo, but it’s also been accused of assisting Saudi Arabia spy on dissidents.
Now NSO Group, hackers-for-hire likened to a private intelligence service, has become a strain for two Wall Street banks that helped fund a buyout of the Israel-based company last month. After struggling to find buyers for a $500 million loan that they agreed to provide, Jefferies Financial Group Inc. and Credit Suisse Group AG had to come up with the cash themselves and are now unloading the debt at a steep discount, according to people with knowledge of the matter.
The banks were left holding the loan after increased public scrutiny of NSO’s most high-profile product: a smartphone-hacking tool known as Pegasus that has helped make the company hundreds of millions of dollars from licensing it to foreign governments and intelligence agencies. In recent weeks, NSO has sought to rebut accusations that Pegasus has been used by countries to spy on dissidents, including from one Saudi citizen who claims the software allowed the kingdom to monitor his communications with murdered journalist Jamal Khashoggi.
“We didn’t get past the initial analysis stages due to our ESG requirements,” said Azhar Hussain, head of global high yield for Royal London Asset Management Ltd., referring to environmental, social and governance criteria used to screen potential investments. “It wouldn’t be an optimal credit selection for our portfolio considering the negative press and the nature of what the company does.”
Pegasus Spyware
In the end, the banks appear to have found enough investors to push the deal through at one of the steepest discounts for the loan market in years.
After canvasing potential buyers for a month, Jefferies made a number of investor-friendly changes to the loan’s structure, including cutting the price to 90 cents on the dollar, down from initial talk of 98 cents. The loan is expected to be allocated on Tuesday. Some firms that manage collateralized loan obligations and have scooped up the company’s debt in the past are among those looking at the new deal, said the people, who asked not to be identified because the discussions are private.
Yet steep discounts typically eat into the fees banks earn for arranging financings, and can even result in outright losses depending on the terms agreed with the borrower.
Jefferies and Credit Suisse declined to comment.
The buyout follows high profile allegations that some of NSO’s clients have used its sophisticated spyware to target political opponents. In the weeks since the acquisition was announced, NSO and its practices have come under scrutiny from Amnesty International and Human Rights Watch, and have been thrown into the spotlight by the New York Times and CBS Corp.’s 60 Minutes news magazine.