BDC Watch List Update: Pluralsight Inc.
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BDC Watch List Quick Update
BDCs Included: ARCC 0.00%↑ , GBDC 0.00%↑ , GSBD 0.00%↑ , OBDC 0.00%↑ , OCSL 0.00%↑ , and TCPC 0.00%↑ .
Vista Equity Partners bought Pluralsight Inc., an online education company, in 2021 for about $3.5 billion. The leveraged buyout was supported by over $1 billion of debt financing by direct lenders including BlackRock Inc.. Blue Owl Capital, Ares Management, Oaktree Capital Management, Goldman Sachs Asset Management, Golub Capital and Benefit Street Partner.
Vista recently wrote off the entire equity value of the investment, the people familiar with the situation said.
One source says that the Utah-based company's financials have improved, with a around 26% EBITDA margins in 2023, but not enough to service nearly $1.3 billion of debt. It's also a company whose future could be dimmed by advances in artificial intelligence, since some of the developer skills it teaches are becoming automated. Catch up quick: Vista agreed to buy the company in late 2020 for $20.26 per share, representing a 25% premium to its 30-day trading average, despite a lack of profits. Pluralsight has since gone through multiple rounds of layoffs, and last month replaced co-founder and CEO Aaron Skonnard with former Avantax CEO Chris Walters.
Pluralsight recently shifted assets away from its lenders as part of a move to raise $50 million of fresh financing, according to people with knowledge of the situation.
In an effort to make a $50 million interest payment coming due, the company moved intellectual property into a new subsidiary and used those assets to obtain additional financing from Vista, the people said. The new loan weakens existing lenders’ claims against the IP, they added.
The IP was put into a restricted subsidiary, which is still tied to the covenants of the original loan, the people said. In the most aggressive liability management exercises, the assets are normally dropped into an unrestricted subsidiary, which is not subject to those restrictions and is entirely out of the reach of existing creditors. Vista also didn’t attempt to pit creditors against each other through a distressed-debt exchange, a tactic that unrestricted subsidiaries have been used to support in the past. Still, some lenders have engaged Centerview Partners and Davis Polk & Wardwell for advice on the situation, while Pluralsight is getting advice from law firm Kirkland & Ellis and Ducera Partners, the people said. Some sponsors will be more reluctant than others to do this, but if it avoids a bankruptcy filing or in-court solution, it’s something to consider,” said Nick Caro, a partner at Goodwin’s business law department and a member of the private equity and debt finance groups.
Pluralsight is already included as a 'watch list' investment (shown in many of the recent Deep Dive Projection reports) for ARCC, GBDC, GSBD, OBDC, OCSL, and TCPC. Please note that these are first-lien positions with a maturity date of April 2027.
The table below ranks each BDC by the amount of exposure to NAV with TCPC, GSBD, and OCSL over 4%. However, this is the total exposure if this investment was completely written off. It is interesting to note that TCPC and GBDC have the highest valuations compared to ARCC and OBDC with the lowest.