Vista Equity Partners bought technology training platform company Pluralsight for $3.5bn in 2020.

Pluralsight has $1.7bn of debt – including from Ares, Benefit Street, Blackrock, Blue Own, Golub, GSAM, Golub and Oaktree.

The company is now distressed – with Vista marking its position to zero.

Vista has now reportedly used a drop-down structure to move intellectual property from Pluralsight to a foreign subsidiary – and Vista has invested $50m in that subsidiary. The $50m has been used to pay interest on Pluralsight’s existing debt. This new financing from Vista is secured on the intellectual property assets moved to the subsidiary – so effectively ranks senior to Pluralsight’s existing debt.

This move may help Vista to achieve a better outcome in a bankruptcy process. It pushes out when bankruptcy occurs – by continuing to service interest on the loan. Having a secured claim over the intellectual property assets in a foreign jurisdiction, may also complicate and delay the bankruptcy process. All this could allow Vista to negotiate a better outcome for itself with creditors to Pluralsight.

Stronger covenants can protect private credit lenders from this type of situation. Negotiating stronger covenants will still be difficult while we have a lot of capital chasing relatively few deals.