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

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

The closely watched restructuring is one of the largest in which the lenders who eventually took control were also so-called direct lenders — asset managers and funds that lend directly to companies.

The deal values ​​Pluralsight at about $900 million, well below the more than $5 billion that Vista, its partners and private lenders have invested in or loaned the business to. Vista and its co-investors have sunk about $4 billion into Pluralsight, while lenders have provided it with about $1.7 billion in debt financing.

As part of the restructuring, lenders agreed to write off about $1.2 billion of $1.7 billion in debt and inject fresh cash into the company, according to people familiar with the matter.

The deal will result in losses for Vista and creditors after Pluralsight’s business deteriorated rapidly. Negotiations between the two sides erupted earlier this year, sending shockwaves through the wider private credit market.

Vista bought the software education company in 2021 at a time when tech valuations were supported by very low 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 financed both acquisitions with approximately $1.7 billion in total debt provided by private lenders, which also included BlackRock, Goldman Sachs, Oaktree, Franklin Templeton’s Benefit Street Partners and Golub Capital.

Vista scrambled some of Pluralsight’s assets earlier this year in an attempt to buy time in negotiations. But in doing so, it angered creditors, who believed control of the company should have been handed over earlier.

The $800 billion direct lending industry has long been marketed as having stronger lender protections than the traditional high-yield bond and leveraged loan markets. Pluralsight tested this thesis, though ultimately the lenders were able to take control without some of the struggles typically seen in public markets.

The company’s woes have also raised questions about the quality of loans from private equity investors, as well as whether they were imprudent in some of their new financings — such as a loan based on Pluralsight’s revenue growth instead of profits. Regulated banks are restricted from making these types of loans, which are considered to be excessively risky.

When the US Federal Reserve began raising interest rates a year after the purchase, the software’s valuations began to fall, and debt that had been written off during the near-zero rate period became onerous to repay.

Many of Pluralsight’s biggest customers were also affected, with dozens of tech companies laying off staff or slowing hiring. Customer absorption increased and Pluralsight’s revenue began to decline last year.

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

On Thursday, Bloomberg reported that an agreement had been reached.