Private Credit: Impact of Pluralsight’s Potential Restructuring Will Be Widely Dispersed and No Effect on Ratings Expected

It has now been widely reported that Pluralsight, burdened by underperformance and its unhedged rising interest costs, had its equity value marked to zero by its sponsor, Vista Equity Partners (Vista). Pluralsight is a technology workforce development company that was acquired by Vista in a take-private transaction in 2021. The acquisition was funded with over $1.5 billion of debt, financed by private credit lenders led by Blue Owl Capital. KBRA has been monitoring Pluralsight’s credit journey for several quarters, because both its debt and/or equity values are present across 20 KBRA-rated transactions. The KBRA-rated transactions that have exposure to Pluralsight include seven rated business development companies (BDC) (see Appendix below for all public BDC exposures and fair market value (FMV) marks of Pluralsight loans), seven structured credit transactions across two managers, and six private funds transactions across six managers.

KBRA does not currently expect Pluralsight’s potential restructuring to impact any of these outstanding ratings because of the size, diversity, and reserve levels of the relevant portfolios. However, KBRA will closely monitor the recovery value for senior secured lenders and the relative orderliness of the restructuring, as this situation may serve as an important bellwether for the industry.

It has now also been reported that Pluralsight, as allowed by its credit agreement, has shifted certain intellectual property assets into a new wholly owned subsidiary. The subsidiary subsequently entered into a new financing agreement with Vista to raise additional debt, whose proceeds were used to meet Pluralsight’s upcoming interest payment obligations. KBRA considers these steps to be reasonable and allowable stopgap measures as lenders and sponsors attempt to negotiate a recapitalization. KBRA continues to believe that one of the hallmarks of the private credit industry is the ability of lenders and sponsors to manage many distressed situations in a relatively orderly fashion.

KBRA analyzed the exposure to Pluralsight across our rated private credit portfolio. As of Q1 2024, Pluralsight’s first lien loans appear in seven KBRA-rated BDCs with an FMV of approximately $375 million. While these KBRA-rated BDCs represent more than 50% of the approximately $700 million total exposure identified across all BDCs, individual investment exposures are low, with five of the KBRA-rated BDCs maintaining modest senior secured first lien Pluralsight loans at less than 1% of total investments while the remaining two BDCs had less than 2.5%. Notably, most of these BDCs have mostly marked down their positions in Q1 2024, with some lenders reducing their marks to 83-½ cents on the dollar. Across our structured credit portfolio, Pluralsight’s first lien loans appear in seven transactions across two different managers. However, the exposure in the portfolio is also rather limited, as the loans represent between 2.3% and 3.9% of the par value of the total assets in the respective transactions. Lastly, across our funds portfolio, Pluralsight’s first lien loans appear in five transactions in which the loan represents less than 1% of the respective transaction’s total market value.