New loan failures have reignited debate over the health of private credit. The bankruptcy of Renovo Home Partners last week has drawn warnings about the quality of the underwriting and possible systemic risks. Industry veterans push back, saying media coverage borders on sensationalism.
The newest stick to beat the credit boom with is the Renovo Home Partners case, an American home-improvement group backed by private-equity firm Audax Group. This week Bloomberg news reported that the company unexpectedly filed for Chapter 7 in early November, just weeks after Blackrock TCP Capital Corp, the largest holder of the company’s 150 million dollars in debt, said the loan was still being carried at par. Blackrock expects to write down its position to zero.
The speed of the reversal has renewed concern over how private credit managers monitor borrowers. In September, First Brands and Tricolor Holdings filed for bankruptcy soon after being marked near par, while a separate case involving Indian financier Bankim Brahmbhatt revealed how fabricated invoices secured more than 500 million dollar in loans from Blackrock’s private-credit unit HPS and other lenders.
“Private credit is a fairly simple business model. You don’t get fooled by accounting tricks that easily. If a loan still collapses overnight, it’s usually just sloppy work,” said a private-equity associate at a U.S. fund who asked not to be identified by name.
He added that many private-credit lenders “do surprisingly little of their own due diligence” and rely heavily on external rating agencies. “They still lean on Moody’s and S&P. Sometimes I wonder whether they even read the reports themselves.”
“When a loan goes from 100 percent of value to almost nothing in a month, something is off,” said Ian Crowther of the University of Manchester. He compared the current weaknesses in private credit to the years leading up to the 2008 financial crisis: too much reliance on models, too little independent scrutiny.
Former UK regulator Mick McAteer echoed those concerns, warning that the opacity of private markets remains a fundamental risk. “Private loans are not continuously priced or tested by the market,” he said. “There is too little transparency and too little consistency in valuation.”
The pile of news headlines about troubled private loans is growing, but not everyone is happy with it. The tone of much of the coverage “carries the taste of clickbait,” said Thomas Phillimore-Kelly, partner and head of alternatives at recruitment firm Blackbrook Partners.
Large managers such as Blackrock and HPS oversee “hundreds of billions of dollars in alternative credit,” making a single default statistically unremarkable, he said. Market stress may come one day, he added, but “with a few public defaults in the market we are not there right now.”
Tod Trabocco, managing director and head of private debt advisory at StepStone Group, too says press coverage of the Renovo bankruptcy lacks context. “150 million dollars seems like a lot, and it is, in a 2 billion dollar fund, but it’s less severe in a 20 billion dollar fund or funds,” he said. “100 percent write-down will sell more headlines than 0.75 percent loss, no? No one would repost: ‘150 million dollar Renovo loan loss results in sub-1 percent at the portfolio level.’”
There is nothing to see here
Blackrock has not answered media requests to elaborate on the Renovo case. Speaking earlier on Blackrock’s third-quarter earnings call, chief financial officer Martin Small said the company’s private credit platforms are “steeped in rigorous underwriting” and that recent defaults have been “idiosyncratic” and limited mainly to syndicated bank loans and collateralized loan obligations.
At a separate press briefing in Frankfurt this month, Matthieu Boulanger, head of Europe for private financing solutions at Blackrock’s HPS, acknowledged that the firm is “aware of the situations” affecting some U.S. borrowers but said similar issues have not appeared in Europe. He described current default rates as a “catch-up” after years of abnormally low losses and said managers with disciplined underwriting and diversified portfolios would be rewarded.
Executives at other major private credit firms also insist the market remains sound. “We believe that the credit markets remain healthy,” said Ares Management CEO Mike Aroughetti. “Recent bankruptcies and fraud cases appear idiosyncratic and isolated, not the sign of a turn in the credit cycle.”
At KKR, co-chief executive Scott Nuttall echoed that view: “There’s nothing alarming going on, just the beginning of a return to a more normal default environment.” Goldman Sachs strategist Spencer Rogers added that while defaults have drawn attention, they still look like “idiosyncratic events, not a credit-type cycle.”
But that reassurance has done little to quiet critics. They argue that Renovo’s collapse and similar write-downs contradict the industry’s narrative of conservative risk management and expose a broader weakness in valuation and disclosure standards.
“When a loan can go from par to zero in a month, valuation models and relationship management clearly aren’t telling the full story,” University of Manchester management scholar Ian Crowther noted in a LinkedIn post about the Renovo loss.
Crowther argued that private credit’s problems resemble those of structured-credit markets before the 2008 financial crisis: weak due diligence, overreliance on models, and a lack of independent oversight. “Expected-loss frameworks still lag reality,” he wrote. “Transparency and genuine credit discipline remain the missing pieces.”
Former UK regulator Mick McAteer, who served on the board of the Financial Conduct Authority, the financial regulatory body in the United Kingdom, said the opacity of private markets remains a central risk. “Private assets are not stress-tested or valued by the market regularly,” he said. “There’s a lack of transparency, governance, and consistent valuation methodology.”
Deeper scrutiny
Industry insiders like Trabocco, who previously chaired Cambridge Associates’ private credit unit, see the same weaknesses, but draw a different conclusion. No LP, he said, can ever be 100 percent sure that nothing is wrong with the investment. “Just like no shareholder or bondholder can ever be 100 percent sure about what’s going on in the company they invest with. Absolute certainty is always impossible.”
Asked whether LPs are equipped to do real due diligence on managers, Trabocco said: “Of course they have the intellectual capacity and analytical rigor to do the work. Now, do they have the time, bandwidth, and human resources? That’s a different question. The biggest constraint I’ve seen in the LP community is the resources to be able to do a really deep dive.”
Investors can strengthen confidence by demanding more transparency from general partners. “A GP will give you a track record slide,” he said. “Don’t stop there. Ask for the data that underpins that slide. Ask for the data that drives those returns. Ask for the underlying cash flows that drive the returns of the track record.”
He added that the quality of communication between LPs and GPs is what ultimately determines trust. “The transparency for an institutional investor comes from the GP,” he said. “That’s the source of transparency. And as soon as an LP feels that he or she is not getting the right answers or they’re getting sunshine blown-up their skirt, that’s a bad sign.”
The ratings dimension
Adding to the concern is the growing reliance on small credit-rating agencies that operate largely outside public scrutiny. A Financial Times investigation published last week reported that niche firms such as Egan-Jones Ratings Company, HR Ratings, and Kroll Bond Rating Agency have captured most of the new growth in private-debt ratings used by insurers.
Egan-Jones, a family-run business with about 20 analysts, issued over 3,600 ratings last year, roughly 244 per analyst, compared with an industry average of 40. Critics say the volume raises questions about depth and quality of analysis.
Private capital managers including Blackrock, Apollo Global Management, and KKR have reportedly distanced themselves from Egan-Jones following regulatory scrutiny, according to the FT.
Colm Kelleher, chair of UBS, warned at the Hong Kong Monetary Authority’s Global Financial Leaders’ Investment Summit on November 5 that such behavior poses “a looming systemic risk” to global finance. “You’re seeing massive growth in small rating agencies ticking the box for compliance,” he said. “The insurance industry, especially in the U.S., is engaging in ratings arbitrage akin to what banks did with subprime loans before the financial crisis.”
At the Frankfurt press event, Blackrock took the opposite view. “People like to use the systemic risk topic or systemic stress right now,” said Matthieu Boulanger. “We disagree with that here. We think that the situations that we just mentioned tend to be idiosyncrasies by nature, unrelated to one another. These are things that happen.”