BlackRock Slashes Private Loan Value From 100 To 0

Earlier this week, the panic quietly, or not so quietly, sweeping the private credit world, hit 11 when Blackstone's Private Credit Fund (BCRED, the world's largest with $82BN in AUM, was hit with a record 7.9% in redemptions, shocking Wall Street as the total number of permitted redemption was above the statutory maximum of 7%, which forced Blackstone's own employees to write $150 million worth of personal checks to make sure those hoping to pull their money didn't start a riot. 

Well, this morning the panic must have risen to 12 out of 10 when markets learned that that other "Black" fund, BlackRock, had slashed the value of a private loan to zero just three months after assessing it at 100 cents on the dollar, marking the second sudden wipeout to recently hit its private-credit division.

According to Bloomberg, the $25 million loan to Infinite Commerce Holdings, an Amazon aggregator that buys up online sellers of products from spa treatments to light bulbs, is now worthless, BlackRock TCP Capital Corp. reported in fourth-quarter filings released last week. The fund had marked the junior debt at 100 cents on the dollar in the third quarter. In other words, total wipeout in 3 months.

While the loan may be small, it confirms how rapidly "software" can reprice from part to 0 in months if not weeks in this time of AI disruption. 

The loan's abrupt markdown highlights a key fault line in private credit: the lag between valuations on illiquid loans and the deteriorating performance of the companies behind them. Zips Car Wash was valued near par by its private credit backers in the months before it sought bankruptcy protection. And back in November, BlackRock TCP slashed the full value of loans it extended to Renovo Home Partners, a struggling home improvement company.

As Bloomberg notes, the write-off comes just months after Infinite Commerce merged with another aggregator and BlackRock debtor, Razor Group, in August, creating the new debt structure valued at par. Previously, BlackRock had valued loans to Razor at a deeply distressed level.

To an extent, the collapse in this case is specific: like other private credit lenders, BlackRock is contending with a sharp reversal for Amazon aggregators which boomed during the Covid-19 pandemic as online shopping proliferated. More recently, the industry has become known for debt restructurings.

Another lender to Infinite Commerce, Victory Park, also fully wrote off its position as of Dec. 31, according to filings, blaming poor performance on depressed demand and higher inventory costs from tariffs. A Victory Park representative didn’t respond to a request for comment.

As an aside, this begs the question how Amazon itself can be doing so well when its third party aggregators are falling like flies. But we leave that analysis to someone else.

BlackRock TCP also partially wrote down its position in SellerX, according to the fourth-quarter filing. The fund cut its dividend to 17 cents a share from 25 cents last week, causing shares to tumble. The private credit fund said in its filing that 91% of valuation cuts across the portfolio stemmed from deals it underwrote in 2021 or earlier that have become challenged by “sustained higher interest rates.”

The moves add to mounting concerns over defaults and underwriting standards in the $1.8 trillion private credit market. The industry’s huge bet on software companies threatened by AI has led to unprecedented redemption demands by jittery investors. 

The latest warning that the wheels are falling off the bus came from Goldman CEO David Solomon who said that “we’re watching very closely to see if there’s been a little bit too much aggression, frothiness,” Solomon said in a Bloomberg Television interview in Sydney on Thursday. “While there have been a bunch of idiosyncratic events where there have been problems, the broad portfolios are performing reasonably well.”

Still, top private credit lenders continue to post strong relative returns. Underscoring the debate about the market’s future, Apollo Global Management Inc. Chief Executive Officer Marc Rowan warned that a shakeout is coming for private credit firms. That same day Ares Management CEO Mike Arougheti said a forecast last week from UBS Group AG analysts that private credit default rates could reach 15% was “absolutely wrong.” Then again, of course he would say that: if UBS is right, Ares would be worthless.