BlackRock's $25 million loan dropped from "par" to zero in three months, drawing renewed attention to private credit risks

Media reports indicate that BlackRock will directly write down the value of a private loan to zero by the end of 2025, whereas just three months ago, the loan was still valued at 100% of its face value. This marks the second sudden "zeroing" event impacting its private credit business recently. BlackRock TCP Capital Corp. stated in its fourth-quarter filing released last week that the approximately $25 million loan was provided to Infinite Commerce Holdings. This company is a so-called "Amazon aggregator" that sells various products by acquiring online sellers. The loan is now worthless. This write-down is part of a broader loan loss disclosed by BlackRock at the end of January this year, when the company indicated that the private credit fund was preparing to reduce its net asset value by 19%. Exposure of Delayed Valuation Issues in Private Credit Analysts believe that although this is a relatively small loan and the sector itself is facing challenges, this sudden valuation adjustment highlights a key issue pointed out by critics of the private credit industry: the valuation of illiquid loans often lags behind the deterioration of the borrowing company's operating conditions. For example, Zips Car Wash's private credit supporters still valued its loans close to face value in the months leading up to its bankruptcy protection filing. In November last year, BlackRock TCP also significantly reduced the value of its loan to home improvement company Renovo Home Partners to nearly zero, as that company was also in distress. This write-off occurred a few months after Infinite Commerce merged with another Amazon aggregator and BlackRock debtor, Razor Group, in August. At that time, the merger created a new debt structure, with valuations still calculated at face value. Previously, BlackRock had valued its loan to Razor at severely pressured levels. Like other private credit institutions, BlackRock is facing a sharp reversal in the Amazon aggregator industry. This sector rapidly grew during the COVID-19 pandemic with the surge in online shopping. Now, the restructured Infinite Commerce debt has been directly written down from "face value" to zero, demonstrating the scale and speed of the financial turmoil the industry is experiencing. Another lender to Infinite Commerce, Victory Park, has indicated in filings that it has written off its entire investment as of December 31. The institution attributed its poor performance to weak demand and rising inventory costs due to tariffs. A representative from Victory Park also did not respond to requests for comment. BlackRock TCP also noted in its fourth-quarter filing that it has partially written down its investment in SellerX. Last week, the fund reduced its dividend from $0.25 per share to $0.17, leading to a significant drop in stock price. Growing Concerns About the Private Credit Market BlackRock TCP stated in the filing that 91% of the valuation reductions in its portfolio come from transactions underwritten in 2021 or earlier, which are now impacted by the "long-term high interest rate environment." These actions have further intensified market concerns about the default risk and underwriting standards in the $1.8 trillion private credit market. The industry had previously made significant bets on software companies, which are now facing threats from artificial intelligence, leading to anxious investors making unprecedented redemption requests. Blackstone Group announced on Monday that it would allow investors to redeem a record 7.9% of its flagship private credit fund. However, leading private credit institutions continue to achieve relatively strong returns. Highlighting the divergence in market outlook for the industry, Apollo Global Management CEO Marc Rowan warned that private credit firms are about to face a round of industry consolidation. On the same day, Ares Management CEO Mike Arougheti stated that UBS analysts' prediction last week that private credit default rates could rise to 15% was "completely wrong."