Vista and co-investors lose $4bn in Pluralsight restructuring

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A group of private credit lenders led by Blue Owl Capital and Ares Management have agreed to take over troubled software company Pluralsight, wiping out $4bn that Vista Equity Partners and other investors had put into the business since they bought it less than four years ago.

The closely watched restructuring is one of the biggest in which the creditors that ultimately took control were also so-called direct lenders — asset managers and funds that provide loans directly to companies.

The deal values Pluralsight at about $900mn, far below the more than $5bn that Vista, its partners and private lenders had invested or lent the business. Vista and its co-investors had sunk roughly $4bn into Pluralsight, while lenders provided it with about $1.7bn of debt financing.

As part of the restructuring the lenders agreed to knock roughly $1.2bn off the $1.7bn of debt and inject fresh cash into the company, according to people with knowledge of the matter.

The deal will lead to Vista and the lenders incurring losses after Pluralsight’s business rapidly deteriorated. The negotiations between the two sides broke out into the open earlier this year, sending shockwaves through the broader private credit market.

Vista bought the software education company in 2021 at a time when tech valuations had been buoyed by rock-bottom interest rates. Shortly after the deal closed, Vista bought another business to bolster Pluralsight’s offerings for engineers and programmers focused on cloud computing.

The private equity firm funded both purchases with roughly $1.7bn debt in total provided by private lenders, which also included BlackRock, Goldman Sachs, Oaktree, Franklin Templeton’s Benefit Street Partners and Golub Capital.

Vista shuffled some of Pluralsight’s assets around earlier this year in a bid to buy time in the negotiations. But in doing so it riled up the creditors, who believed control of the company should have been handed over earlier.

The $800bn direct lending industry had long been marketed as having stronger lender protections than traditional high-yield bond and leveraged loan markets. Pluralsight tested that thesis, although lenders ultimately were able to take control without some of the fighting usually seen in public markets.

The troubles at the company have also raised questions about the quality of the loans being extended by private credit investors, as well as whether they had been reckless in some of their novel financings — such as a loan based on Pluralsight’s revenue growth instead of profits. Regulated banks are restricted from providing these kinds of loans, which are seen to be excessively risky.

When the US Federal Reserve began raising interest rates a year after the buyout, software valuations began to tumble and debt that had been taken out during the period of near-zero rates became onerous to pay back.

Many of Pluralsight’s biggest clients were also hit, with scores of technology companies laying off staff, or slowing hiring. Customer churn rose and Pluralsight’s revenues began to slide last year.

Oaktree, Ares, Benefit Street, BlackRock, Blue Owl, Goldman, Golub, Pluralsight and Vista declined to comment.

Bloomberg earlier on Thursday reported a deal had been reached.