UBS analysts have warned of further stress on documentation as lenders compete for offers, within the wake of a high-profile non-public debt loss earlier this month.
Vista Fairness Companions wrote off its fairness place in Pluralsight, an training tech firm, to zero following a $3.5bn (£2.8bn) take-private acquisition in 2021.
This was reportedly as a result of firm underperformance making Pluralsight unable to service its debt.
Learn extra: Lenders introducing extra flexibility to mortgage docs to beat competitors
UBS famous that the unique acquisition was funded with $1.3-1.5bn in debt financing that was syndicated to numerous direct lenders, with the debt positioned in enterprise growth firms (BDCs).
In response to Pitchbook, lenders embody Blue Owl Capital, Ares Administration, Golub Capital, Goldman Sachs Asset Administration, Oaktree Capital Administration, BlackRock and Profit Avenue Companions.
“For lenders, the state of affairs continues to develop, as it seems that free covenants have allowed Pluralsight to maneuver IP collateral into a brand new subsidiary, and use these belongings to get contemporary financing from Vista, in what is named a drop-down transaction the place collateral is reappropriated away from current lenders,” UBS stated.
“The state of affairs is lower than ideally suited as Vista has engaged in an aggressive stop-gap refinancing on the expense of collectors, and has alarmed non-public credit score buyers. So far, this kind of transaction has occurred quite a few instances within the syndicated mortgage market however has been a far much less widespread prevalence within the non-public credit score market.”
Learn extra: Fitch: Competitors in non-public debt is intensifying
UBS stated that this seemed to be “largely an idiosyncratic occasion” with restricted influence on the broader non-public credit score business, though the complete results will change into clearer within the coming months as positions are remarked and buyers react to potential principal impairments.
Nonetheless, it highlighted rising competitors between the syndicated mortgage market and the higher finish of the direct lending market.
“As competitors between these two markets persists, this might put further stress on documentation for sure non-public credit score offers as lenders intention to compete for transactions,” UBS warned. “Regardless, it serves as a cautionary story for the way lenders may be impacted by transactions with free covenants or documentation.”
