In a recent article by Private Debt Investor (PDI), Atlanta Office Managing Partner, Erich Durlacher, weighed in on the ongoing restructuring of Pluralsight, the Utah-based online education company. Durlacher noted the increasingly aggressive and creative tactics employed by both borrowers and lenders in today’s financial landscape. He highlighted the dropdown technique, also known as a "JCrew transaction,” used by Vista Equity Partners to shift Pluralsight’s intellectual property into a new subsidiary, a move designed to secure new financing while potentially disadvantaging existing creditors.

Durlacher expressed some surprise that sophisticated lenders like Blue Owl, Ares, and BlackRock might have been caught off guard by such a maneuver, given that protections against these tactics are typically built into credit agreements.

“I don’t know the details but it sounds like a JCrew dropdown transaction into a restricted subsidiary. Lenders have known about the JCrew trapdoor for several years and usually bake protections into the credit agreement at the outset. Hopefully, there’s some covenant protection to cap how much value can be dropped down into the subsidiary and it’s not a black hole,” he said.

As discussions near a conclusion, the outcome of this saga could serve as a landmark case study for future financial restructurings.

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