Credit market stress intensifies! A BlackRock loan went from face value to zero in just a few weeks.

About a month ago, BlackRock was still valuing its private debt extended to home improvement company Renovo Home Partners at face value. But as of last week, the new valuation for this debt had dropped to zero.

Renovo, headquartered in Dallas, USA, is a company formed in 2022 by private equity firm Audax Group through the consolidation of several regional kitchen and bath remodeling businesses. Last week, Renovo suddenly filed for bankruptcy and announced plans to close its operations, directly leading to BlackRock’s drastic write-down.

Media reports citing people familiar with the matter reveal that of Renovo’s roughly $150 million in private debt, the majority is held by BlackRock, while Apollo Global Management Inc.’s MidCap Financial and Oaktree Capital Management hold smaller portions.

Renovo’s troubles were no secret. In April this year, lenders had already agreed to partially write down the debt and convert some of it to 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 let the company defer cash interest payments on restructured debt, a mechanism known as “payment-in-kind.”

However, as of the end of September, funds managed by BlackRock and MidCap Financial were still valuing the restructured Renovo debt at face value, which normally means investors still expect to recover the principal in full. Yet, just a few weeks later, the situation rapidly deteriorated.

Philip Tseng, CEO of BlackRock’s TCP Capital Corp., said on an earnings call: “Entering early Q4, the company’s operating performance and liquidity position deteriorated, and Renovo’s board determined that the most feasible path was liquidation. We expect to fully write off this position by Q4 2025.”

Philip Tseng stressed that in Renovo’s case, “We believe this is due to issues with the issuer itself and is not a reflection of overall industry weakness.”

Ted McNulty, managing director of Apollo MidCap Financial Investment Corp., said on a separate call that Apollo only learned at the end of October that Renovo was filing for bankruptcy.

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

According to media analysis, although Renovo’s debt amounts to only a tiny share of total assets for the three institutions, its sudden collapse highlights external concerns over core risks in the private credit market: the book value of illiquid loans can be disconnected from the actual financial condition of the underlying companies. Another similar example is the chain car wash company Zips Car Wash, which was still valued near face value by its private credit lenders prior to its bankruptcy this year.

In addition, the previous collapses of subprime auto lender Tricolor Holdings and auto parts manufacturer First Brands Group also caught investors off guard, intensifying worries in the market about the potential for more pain in credit markets, and prompting Wall Street executives to mutually accuse each other of “lending standards that are too lax.”

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

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