Vista Equity Partners is transferring control of edtech company Pluralsight to a consortium of private lenders through a debt-for-equity swap. This group includes notable firms such as Blue Owl Capital, Ares Management, BlackRock, and Goldman Sachs. The deal is still pending finalization.

Vista acquired Pluralsight for $3.5 billion in 2021, merging it with A Cloud Guru. The initial financing included a $1.175 billion recurring revenue term loan, which allowed for higher leverage than typical EBITDA-based financing. However, the pandemic, which initially boosted sales of technology upskilling courses, has since led to declining revenues for Pluralsight and similar companies, such as 2U and Byju's.

The restructuring is expected to reduce Pluralsight's debt by approximately $1.3 billion, or 75%, while lenders will inject around $250 million in new capital. Vista had previously sought to ease covenants with lenders in early 2023, providing $75 million in new equity to stabilize Pluralsight's finances. The firm warned investors of potential liquidity challenges in early 2024 and arranged a $163 million subscription line facility for the company.

Vista marked down its stake in Pluralsight to zero and began restructuring discussions with lenders in March, hiring Ducera Partners and Kirkland & Ellis for advisory support. In June, Vista executed a preferred equity financing that involved transferring Pluralsight's intellectual property to a subsidiary beyond creditors' reach.

This maneuver may have strained Vista's relationships with lenders, prompting a need for "damage control." Reports indicated that some creditors were extremely upset, although sources noted that Vista acted within its rights under the credit agreement. Ares Capital Corporation's CEO, Kip deVeer, suggested that media coverage of the situation may have been exaggerated, emphasizing confidence in Vista as a sponsor.

Despite this, Ares is cautious about liability management transactions. DeVeer stated that they prioritize thorough documentation and often pass on deals due to concerns over these aspects. He acknowledged that while Ares is prepared to step in when necessary, the situation for Vista Equity Partners may not resolve favorably.

In summary, Vista's decision to hand over Pluralsight to lenders reflects ongoing challenges in the edtech sector, particularly as companies face declining revenues and rising interest rates. The restructuring aims to alleviate Pluralsight's debt burden while raising new capital, but it also highlights the complexities and risks involved in private equity management.