Private Credit News Weekly Issue #76: Valuation Chaos, Zero Marks, and the Exit That Never Comes

Apollo prices Medallia at 77 cents while KKR calls it 91 as BlackRock writes Renovo to zero after marking it at par just weeks earlier

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Valuation divergence in private credit is getting harder to ignore. Apollo priced a loan to software company Medallia at 77 cents on the dollar in Q3. A rival fund co-managed by KKR/FS valued the identical loan at 91 cents. That 14-point spread represents the largest gap yet in regulatory filings, exposing how much discretion lenders have in determining what their investments are worth.

“It’s close in almost every case, until there’s a problem loan,” said Ron Kahn of Lincoln International. “That’s where you see the difference become wider.”

The Medallia divergence is just the start. BlackRock deemed debt it extended to home improvement company Renovo Home Partners worth 100 cents on the dollar at end of September. As of last week, the firm’s new assessment: zero. The Dallas-based company filed for Chapter 7 bankruptcy, planning to liquidate with liabilities between $100-500 million and assets under $50,000.

BlackRock held the majority of Renovo’s approximately $150 million in private debt, with Apollo’s MidCap Financial and Oaktree holding smaller pieces. According to people familiar, lenders had agreed to take losses and convert loans to equity in April as part of a recapitalization meant to give the company a turnaround chance. In Q3, they allowed deferred cash interest via PIK arrangements. Yet at September 30, both BlackRock and MidCap were marking the restructured debt at par.

“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,” said Philip Tseng, CEO of BlackRock TCP Capital. The sudden collapse follows similar patterns at Zips Car Wash, which enjoyed near-par marks from lenders months before bankruptcy earlier this year.

Meanwhile, capital keeps flowing. Blackstone launched its second senior direct lending fund after the first amassed $22 billion just over a year ago, producing a 12% net return on levered basis. Neuberger Berman closed its fifth private credit fund at $7.3 billion inclusive of leverage, touting annualized default and loss rates of just 0.02% and 0.01% respectively.

But the exit crisis is worsening. Partners Capital reports distributions from PE portfolios have dipped to approximately 15% annually from about 23% on average, running a third below norm. According to Euan Finlay, head of EMEA at Partners Capital, “our conclusions are that the middle market has a cyclical problem, larger caps could be more structural.”

KKR publicly distanced its Global Atlantic insurer from Egan-Jones Ratings, stating that over 70% of fixed income assets are rated by S&P, Moody’s or Fitch while less than 1% have sole Egan-Jones ratings. The move follows SEC scrutiny of whether the firm exerted improper commercial influence on ratings procedures.

And in a win for banks, ManTech International launched a $2.3 billion leveraged loan transaction partly to refinance private debt, showing the syndicated market can still compete when pricing works.

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Key Market Themes

1. Record Valuation Gap Exposes Discretion Problem

Apollo priced Medallia’s loan at 77 cents while FS KKR valued it at 91 cents in Q3, creating the largest spread yet in regulatory filings for the software company’s direct loan. Blackstone, which led the originally $1.8 billion loan to Thoma Bravo-backed Medallia in 2021, pegged it at 82 cents after cutting valuations for some time.

Sizable gaps first emerged at year-end 2024, when Apollo’s mark was 12 points below Monroe Capital’s and 11 points below FS KKR and Antares Capital. According to regulatory filings reviewed by Bloomberg, the divergence widened through 2025 as the borrower’s performance deteriorated.

Some market participants say diverging valuations show lenders are reaching different conclusions about expected recoveries and don’t necessarily have access to same information from borrowers. According to Chelsea Richardson of Fitch Ratings, “lenders are starting to think about the outcome, the plan, a potential restructuring or a sale and what the ultimate recovery will be.”

Blackstone’s Position

The loan is one of the largest investments for Blackstone’s flagship BDC BCRED and its publicly traded Blackstone Secured Lending Fund. According to Brad Marshall, Blackstone’s global head of private credit strategies on an earnings call, “there’s no real update from last quarter on Medallia and we believe it’s marked appropriately.”

2. BlackRock Writes Renovo to Zero After Par Mark

BlackRock marked debt extended to Renovo Home Partners at 100 cents on the dollar at September 30. By last week, the assessment changed to zero after the home improvement company filed for Chapter 7 bankruptcy indicating plans to shut down.

BlackRock held majority of Renovo’s roughly $150 million in private debt, while Apollo’s MidCap Financial and Oaktree held smaller portions. According to people familiar, lenders had agreed in April to take losses and convert loans into equity as part of recapitalization meant to give the company turnaround chance.

In Q3, lenders also allowed deferred cash interest payments via PIK arrangements, regulatory filings show. Yet at quarter-end, funds managed by BlackRock and MidCap were still marking restructured debt at par, typically indicating investors expect full repayment.

Sudden Collapse

According to Ted McNulty of Apollo, managing director for MidCap Financial Investment Corp., the firm “became aware” Renovo would file bankruptcy at end of October. The main borrowing entity HomeRenew Buyer listed liabilities between $100-500 million and assets under $50,000.

3. Blackstone Launches Second Fund After $22 Billion Debut

Blackstone began reaching out to investors to raise money for second series of its senior direct lending fund strategy after the first amassed $22 billion just over a year ago, according to people familiar. The firm launched Blackstone Senior Direct Lending Fund Series II, focused on large-cap and middle-market transactions.

The first vintage’s $22 billion close including leverage beat initial target of $10 billion and has produced 12% net return on levered basis per regulatory filings. The structure is hybrid between drawdown funds where investors lock up capital for set years and traditional evergreen funds with no set maturity but periodic buy-in and redemption windows.

Private capital firms are raising ever-bigger funds as capital concentrates in hands of leading managers. Credit strategies drove most fundraising for biggest publicly traded alternative asset managers in Q3, with six large firms raising $257 billion in the quarter, approximately 60% dedicated to credit per earnings data.

Market Dynamics

According to people familiar, the rapid re-launch suggests strong demand despite growing concerns about valuation practices and return compression. The 12% levered return on Series I provides marketing ammunition even as questions mount about marks on troubled credits.

4. KKR Publicly Distances Global Atlantic from Egan-Jones

KKR publicly distanced its insurer Global Atlantic from Egan-Jones Ratings, singling out the firm as rarely used in a presentation to investors discussing Q3 earnings. According to the presentation, over 70% of Global Atlantic’s fixed income assets are rated by S&P, Moody’s or Fitch while less than 1% have sole Egan-Jones rating.

The move follows SEC enforcement attorneys looking into whether senior Egan-Jones executives exerted improper commercial influence on ratings procedures. Bank for International Settlements said in October report that private credit grades used by insurers tend to be concentrated among smaller ratings firms, raising risk of “inflated assessments of creditworthiness.”

Apollo CEO Marc Rowan also name-checked Egan-Jones on Apollo’s Q3 earnings call, stating its insurer Athene didn’t use the firm. In a letter distributed last week, Egan-Jones CEO Sean Egan said nearly 600 clients trust it to provide high-quality ratings, calling them “accurate, timely, and transparent.”

Industry Scrutiny

Egan-Jones has been talking point among large industry players over upbeat ratings for various private credit loans. The firm rated over 3,000 private credit investments last year with approximately 20 analysts, building dominant position early in the rapidly expanding market.

5. PE Distributions Collapse by Third

Partners Capital reports payouts from private equity firms running about a third below norm, raising questions whether cyclical exit problems are becoming structural for larger players. Distributions from PE portfolios the company invested in have dipped to approximately 15% annually from about 23% on average.

According to Euan Finlay, head of EMEA at Partners Capital, “our conclusions are that the middle market has a cyclical problem, larger caps could be more structural. It’s not obvious how you exit a $10 billion market cap business” because IPO markets changed dramatically over last decade due to rise of passive investing.

IPO markets are only part of the problem, with corporate sales and buyouts also gummed up as heavier debt burdens limit buyer interest. The industry has turned to continuation vehicles and private IPOs to generate cash for investors, but while growing in popularity, they still account for relatively small portion of exits.

Credit Impact

Direct lending has also been affected by slower buyout market. According to Emma Bewley, head of credit at Partners Capital, pricing has tightened as private credit managers flush with cash chase sizable deals on market, raising risk of adverse selection. Lending standards have also loosened, she added.

6. ManTech Chooses Banks Over Private Credit

IT firm ManTech International launched $2.3 billion transaction partly to refinance private debt, representing win for broadly syndicated loan market. The deal consists of new $2.15 billion term loan B and $150 million delayed draw term loan.

The seven-year TLB carries price talk of 300 bps over SOFR, offered at original issue discount of 99.0-99.5 cents on dollar. The $150 million DDTL is available for 24 months. Proceeds together with new five-year $350 million revolver will refinance existing debt including privately-placed loan.

JPMorgan leads the transaction as bookrunner and administrator, with Goldman Sachs, Citigroup, Morgan Stanley, BMO, BNP Paribas, Citizens, RBC, and Jefferies as additional bookrunners. The deal represents latest example of syndicated market winning against private credit lenders in competition for scarce new money deals.

Market Signal

According to market participants, the transaction demonstrates banks can compete effectively when pricing tightens enough and borrowers seek broader distribution. The move from private credit to syndicated loans mirrors similar refinancings at other companies seeking lower costs.

7. Neuberger Closes $7.3 Billion Fifth Fund

Neuberger Berman raised $7.3 billion for final close of its fifth private credit fund, according to statement. The fund will invest in senior secured, first-lien unitranche loans to companies backed by private equity across North America, with the raise inclusive of leverage.

Neuberger pulled in $8.1 billion for its fourth vehicle in 2022, far exceeding initial $5 billion target. The firm’s private debt business manages $24.3 billion across strategies, with annualized default and loss rates at just 0.02% and 0.01% respectively since inception.

Credit drove most fundraising efforts for biggest publicly traded alternative asset managers in Q3 as pension funds and insurers continue seeking stable, higher-yielding investments. However, institutional fundraising in private credit has plateaued over past year as some investors hit allocations, prompting managers to court insurance and retail investors.

Performance Claims

According to Susan Kasser, head of Neuberger Berman Private Debt, “capital preservation is our first priority” with the firm touting minimal default and loss rates as assets under management grow. The strong fundraising comes despite growing concerns about valuation practices and return compression across the industry.

Deals of Note

• JTC Plc - Blackstone leads £1.5B private credit package for Permira’s buyout of financial services firm

• Hologic - Wall Street banks considering bringing private credit firms into portion of $12.25B debt financing supporting Blackstone-TPG acquisition, potentially selling some of $2B second-lien to direct lenders

• Goodyear Chemical - Silver Point Capital leads $450M senior secured loan supporting Gemspring Capital Management’s acquisition

• Esso Singapore - PT Chandra Asri Pacific mandates KKR’s Global Atlantic to provide financing for $1B acquisition of Esso-branded service stations from Exxon Mobil

• ManTech International - Launches $2.3B leveraged loan transaction ($2.15B TLB plus $150M DDTL) at SOFR plus 300 bps to refinance private debt, representing win for syndicated market

What It Means

Valuation divergence during stress is nothing new. When Apollo prices Medallia at 77 cents and KKR calls it 91 cents, both firms are making different bets on recoveries, access to information, and workout strategy. Lincoln International’s Kahn is right: marks stay tight until performance slips, then assumptions diverge. The 14-point spread isn’t scandal. It’s what happens when lenders start pricing in different exit scenarios.

What’s notable is the velocity. BlackRock marking Renovo at par through September, then zero by November, demonstrates how fast situations unravel once liquidity drains. Lenders restructured in April, extended PIK in Q3, and still held 100 cents at quarter-end because the working assumption was survival, not liquidation. The Chapter 7 filing with under $50,000 in assets didn’t invalidate the mark. It invalidated the survival thesis.

Blackstone launching Series II after raising $22 billion for Series I shows capital concentration works regardless of stress signals. The 12% levered return on Series I makes the pitch, even if Medallia-style divergence raises questions about what’s inside. KKR distancing Global Atlantic from Egan-Jones with under 1% exposure while Apollo’s Rowan does the same demonstrates how quickly the herd moves once regulatory scrutiny arrives. Nobody wants association risk with a firm that rated 3,000 deals using 20 analysts.

ManTech choosing $2.3 billion of syndicated loans at SOFR plus 300 bps over private credit proves pricing still matters. When banks can move size at tight spreads, the flexibility premium private credit charges gets harder to justify. Neuberger closing $7.3 billion despite valuation noise shows institutional investors still trust the model, especially with default rates at 0.02%. Whether those statistics hold depends on how many more Renovos are marked at par waiting to go to zero.

The real tension isn’t valuation discretion. It’s that the system works smoothly until someone needs an exit. Medallia lenders can disagree on marks for quarters. Renovo went from par to zero in weeks. The Medallia approach buys time. The Renovo outcome is what happens when time runs out.