Ahead of its planned initial public offering this spring, digital music service Spotify has solved part of its debt problem in a deal between investors and Chinese tech conglomerate Tencent Holdings, according to a report from Recode, citing people familiar with the deal.

Recode reported late Wednesday that TPG and Dragoneer Investment Group led a debt round in 2016 that loaned Spotify $1 billion. The companies then made a deal late in 2017 to convert some of the debt into equity, and then sold it to Tencent.

It was a complex transaction, Recode reported, but it gave TPG and Dragoneer a good return on the investment, while at the same time helped Spotify shed a possible debt problem before it tries out its IPO.

Published reports earlier Wednesday said that Spotify has filed confidentially with regulators for an IPO, planning a direct listing in the first half of the year. Reuters reported the listing would allow some longtime investors to cash out.

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Spotify was valued at nearly $19 billion last year.

A direct listing is an unusual way for a company to go public, Recode noted, but could allow Spotify to save money on banking fees. However, it also technically didn't qualify as an IPO under the terms of the 2016 deal in which TPG, Dragoneer and Goldman Sachs (GS) - Get Goldman Sachs Group, Inc. (GS) Report lent Spotify $1 billion via convertible debt financing.

Recode noted that Tencent Holdings (TCEHY) and Spotify announced in December that Tencent bought Spotify stock from existing shareholders as part of an equity swap. The Recode report said, according to a person familiar with the transaction, that some of that stock came TPG and Dragoneer. The debt was converted into equity valued at about $10 billion, and then sold to Tencent at about a $20 billion valuation.

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This article was written by a staff member of TheStreet.