BlackRock's valuation of a loan has been directly written down to zero, revealing a major weakness in the private credit market.

About a month ago, BlackRock valued the private debt it had issued to the struggling home improvement company Renovo Home Partners at 100 cents on the dollar. However, as of last week, the company's latest valuation was zero. Amid the significant downgrade, Renovo, based in Dallas and formed by private equity firm Audax Group's integration of several regional kitchen and bathroom remodeling businesses in 2022, suddenly filed for bankruptcy last week, indicating its plans to shut down. Sources familiar with the matter said that BlackRock holds most of Renovo's approximately $150 million in private debt, with Apollo Global Management Inc.'s MidCap Financial and Oaktree Capital holding a smaller portion. Renovo's financial troubles were no secret. Sources said that in April, lenders agreed to take losses, converting some of the loans into equity as part of a restructuring plan to help the company regroup. Regulatory filings show that in the third quarter, they also agreed to defer cash interest payments on the restructured debt, a type of payment referred to as PIK. However, as of the end of September, funds managed by BlackRock and MidCap Financial were still valuing Renovo's new debt at face value, which typically implies investors expect to receive full repayment. Just a few weeks later, the situation took a turn for the worse. "In early fourth quarter, due to the company's performance and liquidity issues, the Renovo board determined that the best course of action was to enter into a liquidation process," said BlackRock TCP Capital Corp. CEO Philip Tseng on an earnings call. "We anticipate fully writing off this position in the fourth quarter of 2025." Ted McNulty, a managing director at Apollo, said during a MidCap Financial Investment Corp. earnings call that the company learned at the end of October that Renovo would be filing for bankruptcy. While Renovo's debt was a small portion of the total assets of the three lenders, the company's sudden collapse highlights a key issue at the core of critics' arguments about a major vulnerability in the private credit market: the disconnect between the valuation of illiquid loans and the operating status of the target company.