Key Takeaways
- • Vista Equity Partners is in talks to cede control of Pluralsight to its private credit lenders in what would be the first major debt restructuring of a company financed by "shadow bank" lenders, according to Reuters, citing three people familiar with the matter and fund documents.
- • Vista acquired Pluralsight for $3.9 billion in 2021 and later merged it with Cloud Guru, which it bought for $1.6 billion; it placed more than $1.5 billion of debt with investment firms rather than banks.
- • Vista marked its $1.6 billion equity investment in Pluralsight down to zero in May 2024, after smaller write-downs over the prior eight quarters, and had propped up the company with a $162.5 million subscription line facility from its PE fund.
- • Creditors negotiating a debt-for-equity conversion reportedly include Blue Owl, Ares Management, Goldman Sachs' asset management unit, Benefit Street Partners, BlackRock, Oaktree and Golub Capital; no agreement is certain and Vista and Pluralsight declined to comment.
- • Market observers cite the case as a cautionary tale and potential bellwether for buyout firms using the $1.7 trillion private credit market to finance heavily levered portfolio companies.
Summary
Vista Equity Partners is in talks to hand control of its portfolio company Pluralsight to lenders, according to Reuters, which cited three people familiar with the matter and fund documents it reviewed. The three sources said no agreement is certain, and the lenders are negotiating the conversion of their debt into equity in Pluralsight. Spokespeople for Vista and Pluralsight declined to comment. Reuters reports that the transaction would be the first major debt restructuring of a company that borrowed from so-called "shadow banks," meaning non-bank investment firms not subject to the regulatory constraints of traditional lenders.
Vista, which manages more than $100 billion in assets, acquired Pluralsight, an online educational platform for IT workers, for $3.9 billion in 2021 and merged it with cloud computing learning company Cloud Guru, acquired for $1.6 billion. Rather than banks, which the sources said were restricted by regulators from providing the loan Vista sought, Vista placed more than $1.5 billion of debt with investment firms. The debt was a "recurring revenue term loan" tied to Pluralsight's future sales. According to the sources, the structure offered Vista strong returns if the business performed well, but left the company more easily transferred to creditors if the investment soured. Pluralsight carried net debt of about $500 million before the acquisition, according to an SEC filing.
Fund documents shared with Vista's private equity investors show the $1.6 billion equity investment was marked down to zero in May 2024 over a single quarter, after smaller valuation hits in the previous eight quarters. Vista also allowed Pluralsight to borrow $162.5 million from its PE fund through a subscription line facility. Vista's documents attribute the decline to an economic slowdown that prompted customers to cut IT staff, higher interest rates that increased debt costs, and competitors offering learning products for free in the first quarter of 2024. Warning signs emerged in early 2023, when Vista sought looser covenants and injected $75 million of equity, and Vista began reporting revenue declines in the third quarter of 2023. Equity value was cut from $2.3 billion in Q1 2023 to $1.5 billion in Q4 2023 before going to zero. Chris Walters, who became CEO in April 2024 succeeding co-founder Aaron Skonnard, projected renewal rates in the low 70s percent for 2024. Vista told investors the company could not service its debt and had engaged advisers for negotiations with lenders. In May, according to credit rating agency KBRA, Vista moved some Pluralsight intellectual property to a new subsidiary and borrowed against it to meet interest payments. KBRA said the situation "may serve as an important bellwether for the industry."
Academics quoted in the report characterized the case as a warning for the sector. NYU Stern's Gustavo Schwed called it "a wake-up call" likely to prompt tighter credit agreements, while Chicago Booth's Steven Kaplan said it was too early to gauge how many similar cases will emerge, adding that some buyout firms were very aggressive in 2020 and 2021.
Vista, which manages more than $100 billion in assets, acquired Pluralsight, an online educational platform for IT workers, for $3.9 billion in 2021 and merged it with cloud computing learning company Cloud Guru, acquired for $1.6 billion. Rather than banks, which the sources said were restricted by regulators from providing the loan Vista sought, Vista placed more than $1.5 billion of debt with investment firms. The debt was a "recurring revenue term loan" tied to Pluralsight's future sales. According to the sources, the structure offered Vista strong returns if the business performed well, but left the company more easily transferred to creditors if the investment soured. Pluralsight carried net debt of about $500 million before the acquisition, according to an SEC filing.
Fund documents shared with Vista's private equity investors show the $1.6 billion equity investment was marked down to zero in May 2024 over a single quarter, after smaller valuation hits in the previous eight quarters. Vista also allowed Pluralsight to borrow $162.5 million from its PE fund through a subscription line facility. Vista's documents attribute the decline to an economic slowdown that prompted customers to cut IT staff, higher interest rates that increased debt costs, and competitors offering learning products for free in the first quarter of 2024. Warning signs emerged in early 2023, when Vista sought looser covenants and injected $75 million of equity, and Vista began reporting revenue declines in the third quarter of 2023. Equity value was cut from $2.3 billion in Q1 2023 to $1.5 billion in Q4 2023 before going to zero. Chris Walters, who became CEO in April 2024 succeeding co-founder Aaron Skonnard, projected renewal rates in the low 70s percent for 2024. Vista told investors the company could not service its debt and had engaged advisers for negotiations with lenders. In May, according to credit rating agency KBRA, Vista moved some Pluralsight intellectual property to a new subsidiary and borrowed against it to meet interest payments. KBRA said the situation "may serve as an important bellwether for the industry."
Academics quoted in the report characterized the case as a warning for the sector. NYU Stern's Gustavo Schwed called it "a wake-up call" likely to prompt tighter credit agreements, while Chicago Booth's Steven Kaplan said it was too early to gauge how many similar cases will emerge, adding that some buyout firms were very aggressive in 2020 and 2021.
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