Mark It Zero, Dude

“Everyone is in breach of their covenants,” he answered.

About a month ago, BlackRock told investors that the private loans it made to Renovo Home Partners were worth 100 cents on the dollar. Full recovery expected. Nothing to worry about. Last week, all of a sudden, those same loans were worth zero.

This is why I’m always harping on the idea that one day you can wake up, and everything can just be different. On the Friday before the regional banking crisis, things were fine. Then, Silicon Valley bank put out a press release saying they were selling equity and, by Monday’s open, regional banks were going bankrupt and needed a bailout. One day before Covid everything was fine, the next people were fist fighting over toilet paper at Costco.

Shit changes quickly in today’s markets. Sometimes in seconds. And no matter how much market bears, skeptics or cynics are ridiculed during the euphoria on the way up, eventually many of their warnings come to fruition. Most of the time, it’s just simple math.

Anyway, Bloomberg reported this morning that Renovo, a Dallas-based roll-up of regional kitchen and bath remodelers created by Audax Group in 2022, filed for Chapter 7 bankruptcy and plans to liquidate. BlackRock held most of Renovo’s roughly $150 million in private debt, while Apollo’s MidCap Financial and Oaktree owned smaller pieces. Just weeks after marking the debt at par, the entire position disintegrated.

It’s the private-credit version of the same game we’ve seen in subprime auto lending and regional banking: pretend the assets are fine until they vanish.

What the reality of a bankruptcy looks like to private credit marks

And, as I’ve said a million times, the dickless cowards running these companies will employ any scheme or bullshit nonsense they can think of to avoid admitting they’ve made horrible investments and to put off ugly consequences for literally one more minute. They’ll stretch accounting rules, invent new jargon, refinance the same corpse five different ways — anything to pretend it’s fine for one more quarter before reality shows up with a crowbar.

As I wrote back in October, private-credit funds have kept zombie borrowers alive with covenant waivers, extend-and-pretend deals, and payment-in-kind IOUs — the same toolkit now showing up in the Renovo mess.

Back in April, lenders already knew Renovo was in trouble. They’d agreed to take losses and swap part of their debt for equity, a move meant to buy the company time. By the third quarter, they’d even allowed Renovo to skip cash interest payments, deferring them through a “payment-in-kind” arrangement. Despite all this, by the end of September, BlackRock and MidCap still carried the new Renovo debt at full value.

Then October arrived, and the illusion collapsed almost instantly. Philip Tseng, CEO of BlackRock TCP Capital, said during an earnings call that “early in the fourth quarter, company-specific performance and liquidity issues led the Renovo board to determine that the best available path forward was a liquidation process.” In plain English: the loans that were supposedly money-good just weeks earlier had gone to zero.

Renovo’s implosion is not just another bad deal. It’s a symptom of something deeper—the structural flaw at the heart of private credit. The entire pitch of the asset class is that investors can earn equity-like returns without equity-like volatility. That promise only holds if you never have to face real market prices. The moment these loans are forced to meet reality, the marks can swing from “safe and stable” to “worthless” in an instant.

Remember when I wrote in early October about an interaction I had with a banker at a bar on Park Avenue? I asked him candidly after his second martini: “What’s it really like out there for CRE and private credit?”

“Everyone is in breach of their covenants,” he answered.

Turns out a drunk person speaks a sober mind. Zips Car Wash went through the same story earlier this year. So did Tricolor Holdings and First Brands Group. All were valued near par right up until bankruptcy. Each one was described as a one-off, “company-specific” problem. But when every “isolated” issue looks the same, it’s no longer isolated—it’s a pattern.

In late October I wrote that the credit cycle always starts by breaking the weakest borrowers first and the lenders who fed them second. Subprime autos are phase one. Private credit is shaping up to be phase two. Like Carvana and Ally Bank, the players here have been disguising leverage and dogshit lending standards as innovation. The only difference is that in private credit, the game doesn’t play out in public markets—it hides in quarterly reports that show smooth, untroubled net asset values until the floor disappears.

Renovo isn’t the last cockroach—it’s just the one that got caught in the light. When the biggest asset manager on the planet can go from par to zero in a matter of weeks, it tells you everything you need to know about the true stability of private credit. The question now isn’t whether other marks will be revised. It’s how many more are still pretending not to smell the smoke.

BlackRock’s Renovo markdown may not move its overall balance sheet, but it’s a warning shot for an entire market built on marks that don’t move until it’s too late. The public markets have Carvana, with its creative accounting and recycled risk. The private markets have Renovo, with its “100 cents” paper that suddenly turned into dust.

Different worlds, same delusion. But hey, the KRE is green today. Ho hum.

For more, read my soon to be Pulitzer Prize winning (probably) October macroeconomic analysis, Race To The Dung Heap, where I talked about how private credit, commercial real estate, and subprime auto were all starting to smell like the real catalysts for the next collapse.

Race To The Dung Heap

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