Credit market pressure intensifies! A loan from BlackRock went from par value to zero in just a few weeks

About a month ago, BlackRock still valued its private debt to home improvement company Renovo Home Partners at face value. However, as of last week, the new valuation of this debt has dropped to zero.

Renovo, based in Dallas, Texas, is a company formed by private equity firm Audax Group in 2022 through the consolidation of several regional kitchen and bath remodeling businesses. It suddenly filed for bankruptcy last week and announced plans to shut down operations. This directly led to a sharp downgrade in BlackRock's valuation.

Media reports, citing informed sources, revealed that most of Renovo's approximately $150 million in private debt is held by BlackRock, while a smaller portion is held by MidCap Financial, a subsidiary of Apollo Global Management Inc., and Oaktree Capital Management.

Renovo's predicament is no secret. In April of this year, lenders agreed to partially write down and convert some of the debt into equity for a capital restructuring, hoping to give the company a chance to turn its business around. Regulatory filings show that in the third quarter, lenders also agreed to defer cash interest payments on the restructured debt, a arrangement known as "payment-in-kind."

However, as of the end of September, funds managed by BlackRock and MidCap Financial still valued the restructured Renovo debt at face value, which typically indicates that investors still expect to recover the principal in full. But just a few weeks later, the situation rapidly deteriorated.

Philip Tseng, CEO of TCP Capital Corp., a subsidiary of BlackRock, stated during an earnings call, "Entering the beginning of the fourth quarter, the company's operational performance and liquidity situation encountered problems, and the Renovo board believes that the most viable path is to proceed to liquidation. We expect to fully write off this position by the fourth quarter of 2025."

Philip Tseng emphasized that regarding Renovo's outcome, "We believe this is due to issues with the issuer itself, rather than a reflection of overall industry weakness."

Ted McNulty, managing director of Apollo MidCap Financial Investment Corp., stated in another call that Apollo only learned of Renovo's impending bankruptcy at the end of October.

Spokespersons for BlackRock, Apollo, and Oaktree Capital declined to comment further.

Media analysis suggests that although Renovo's debt represents only a small portion of the total assets of the three institutions, its sudden collapse has raised concerns about the core risks in the private credit market: the disconnect between the book valuation of illiquid loans and the actual operating conditions of the underlying companies. Similar examples include the chain car wash company Zips Car Wash, which was still valued close to face value by its private credit lenders before filing for bankruptcy In addition, the collapse of the subprime auto loan company Tricolor Holdings and the auto parts manufacturer First Brands Group caught investors off guard, exacerbating concerns in the market about potential further pain in the credit market and triggering mutual blame among Wall Street executives for "lending standards being too lax."

Renovo's main borrowing entity, HomeRenew Buyer Inc., filed for Chapter 7 bankruptcy liquidation last week, with reported liabilities between $100 million and $500 million, while assets were less than $50,000