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Last week the question was how Blue Owl’s Loparex marks fell from 88 to 5 cents in nine months. This week we got the answer. The entire $160 million second-lien is being wiped out.
Monarch Alternative Capital and General Atlantic will take majority control of the coated-paper maker in a roughly $1 billion out-of-court restructuring that sheds more than $400 million of liabilities. The pair bought into the first-lien earlier this year when it traded at distressed levels. Blue Owl, which owned the whole second-lien piece and a small slice of the first, gets a small equity stub. The first-lien splits three ways. About $180 million of first-out paper is reinstated at par, roughly $300 million of second-out recovers around 80 cents including equity, and the remaining $220 million converts to equity. Loparex gets $80 million of new money. Pamplona, which bought the company in 2019, put in a small piece.
Blue Owl had been drawn in by pricing as wide as S+875 on the junior tranche against S+450 on part of the first-lien. A spokesperson called it “an isolated credit situation, not a signal about the broader portfolio,” and pointed to non-accruals around 1% of the direct lending book and a loss rate of 12 bps since inception. Both are true. So is the fact that S+875 was the market telling Blue Owl exactly how risky this was, and the fund marked it at 88 anyway.
The wider backdrop is the hike landing on borrowers with no cushion. Houlihan Lokey has average interest coverage across the market at 1.5x, down from 3x when the boom began five years ago. Morningstar DBRS says 15% of its rated private credit borrowers sit under covenant relief or capital support, and the share seeking to defer interest has nearly doubled to 6.8% in a year. The ECB has now hiked twice.
Apollo Debt Solutions capped for a third straight quarter after 14.7% sought out. BlackRock’s BDC complex lost its COO a month after losing its CEO, and Hudson Bay abandoned a $1 billion private credit build led by two ex-BlackRock executives. Cox Capital is back with tenders for BCRED and HLEND at tighter discounts. And Blackstone shelved a $3 billion CFO after buyers balked at PE stakes older than the first iPhone.
Key Market Themes
1. Loparex Clears, and the Second-Lien Gets Nothing
Monarch and General Atlantic are set to take control of Loparex in a restructuring that swaps roughly half the first-lien for equity and eliminates the roughly $160 million second-lien held by Blue Owl. The deal received unanimous lender consent, closes by year-end, and keeps the company out of Chapter 11 after Moody’s had flagged one as a live risk. Loparex had failed to draw interest on a $1.5 billion refinancing in January, skipped a June interest payment on the junior debt, and was under forbearance through September.
S&P described the company’s paper and film release liners as serving “a very narrow niche” of label and tape applications, with 2026 volumes projected flat and 10% below 2024. Pricing pressure and input costs squeezed margins against a debt load the company couldn’t carry. The first-lien recoveries range from par on first-out to about 80 cents on second-out to equity on the rest. Monarch and GA built their position in the first-lien at distressed prices and now own the business.
What S+875 was telling you
Blue Owl says Loparex is isolated, and on a 12 bps lifetime loss rate that’s defensible. The problem is the entry, not the exit. A second-lien paying S+875 on a niche industrial with flat volumes and a 2019 sponsor buyout on top is priced for exactly this outcome. Marking it at 88 cents in December meant the fund believed the rescue M&A deal more than the coupon. Monarch and GA read the same credit, bought the first-lien at a discount, and walked away owning the company. That’s the difference between a lender that underwrites the downside and one that hopes the transaction closes. Loparex is small relative to Blue Owl’s book. It’s a clean template for how the next dozen play out.
2. Coverage Halves and the Amendments Pile Up
Houlihan Lokey’s data shows average interest coverage across direct lending at 1.5x, down from roughly 3x five years ago. Morningstar DBRS reports 15% of actively rated private credit borrowers operating under covenant relief or receiving capital support, with the share looking to defer interest up to 6.8% from about half that a year ago. The Fed’s hike last week was the first in over three years. The ECB moved in June and again this month as war-driven energy prices produced the region’s fastest inflation in almost three years.
KBRA’s William Cox put the impact in perspective. “For most borrowers 25-50 basis points will not be that impactful. But for some borrowers, who were otherwise already struggling to absorb higher interest costs, this will be quite unwelcome.” Benefit Street’s Anant Kumar listed the tells to watch. “Rising PIK, amendment requests and covenant relief. The more marginal borrowers will feel that first.” CVC Marathon’s Bruce Richards took the lender’s view. “Higher for longer is good. Just make sure you are lending to the right companies.”
The cushion is gone
A market that averaged 3x coverage could absorb a hiking cycle. A market at 1.5x cannot, because the average includes the 14% already below 1.0x and a long tail between 1.0x and 1.5x that one more move pushes under. Fifteen percent under covenant relief means the amendment wave is already here, and the doubling of interest deferral requests means PIK is doing the work that cash flow used to. Richards is right that higher rates help lenders who picked well. The Houlihan number says the average lender didn’t, and the average borrower is one bad quarter from needing the same relief Loparex asked for.
3. Apollo Caps a Third Time, Backlog Slowly Drains
Apollo Debt Solutions BDC limited redemptions at 5% after 14.7% of shares sought out, down from 16.8% last quarter. The $26 billion fund took in about $200 million of gross inflows including reinvested dividends, paid out $700 million in repurchases, and expects net outflows around $500 million, or 3% of NAV. Most of the requests were repeats from investors not fully paid earlier. Those who sought to exit this year will have roughly 75% of their capital back after this round. The fund said it can “add leverage modestly when warranted” while working through the queue.
Antares Private Credit Fund sits at the other end, with 0.45% of shares tendered against a 5% offer, up from 0.16% and 0.01% in prior quarters. Apollo’s letter included a line that reads as a shot at peers. “The choices managers made in more benign market conditions are beginning to show through in performance.”
Seventy-five percent back is the number
The redemption cycle has settled into a grind. Investors who asked in the spring have three-quarters of their money and will have the rest within a quarter or two. Requests are falling at Apollo, HLEND, and Morgan Stanley without disappearing, and the funds are adding leverage to pay them out rather than selling assets. That’s the intended design of the structure working, if slowly. Apollo’s jab about choices made in benign conditions is the more interesting line. A manager running a $26 billion fund at 8.2% since 2022 is telling investors the dispersion is here and it’s not the one on the wrong side of it.
4. BlackRock’s BDC Complex Keeps Shedding People
Patrick Wolfe resigned as COO of BlackRock’s three BDCs effective December 18, a month after CEO Phil Tseng’s exit. Dan Worrell, named president after Tseng left, takes on both roles. TCPC’s sale of nearly half its book to a Pantheon vehicle is expected to cut NAV by about 10.4% per share from $6.58 at June 30. The fund faces at least four lawsuits including a class action over valuations, plus a DOJ probe. BDEBT breached its 5% cap in June for the first time since its 2022 launch.
Separately, Hudson Bay Capital scrapped plans for a dedicated private credit business and parted with Raj Vig and Tim Morris, both hired from BlackRock’s legacy platform and allocated about $1 billion in seed capital. Vig had been TCPC’s chairman and CEO. Morris said the funds he helped manage had “eight years of clean audit opinions and a clean SEC exam.”
The legacy book takes its founders with it
Hudson Bay seeding $1 billion for two ex-TCPC executives, then unwinding the whole thing as the TCPC valuation probe intensified, tells you how far the contamination reaches. Vig ran TCPC. The DOJ is asking how that fund marked its loans. A $20 billion hedge fund concluded the association wasn’t worth the seed capital. Meanwhile BlackRock itself is now on its third leadership configuration for the legacy BDCs in a month, with Worrell holding two titles across three funds. The HPS team is running the cleanup and the old Tennenbaum platform is being sold off in blocks. What’s left of BlackRock’s original private credit strategy is a set of lawsuits and a NAV that drops 10% on the next transaction.
5. Cox Returns With Smaller Discounts
Cox Capital launched fresh tenders for up to $20 million of BCRED Class I shares at 12.5% below August NAV and a similar amount of HLEND at 17.5% below July NAV, expiring November 3. Its prior tender across five BDCs at an average 26% discount drew less than $5 million. BCRED noted investors who sought liquidity in Q2 and Q3 will have about 75% of their capital within roughly 90 days. HLEND requests fell to 11.5% from 13.3%.
“We’re pretty early in terms of this problem persisting,” said CEO John Cox. “There’s a belief that it’s a temporary thing that’s going to go away, and it’s proven to not be that. We’re just going to keep coming back each quarter and providing a price based on the market at the time.”
Tightening the bid
Cox cut his discount from 26% to 12.5% on BCRED, which is an admission that the first price was wrong. At 26% he was competing against a gate that pays 75% within 90 days, and the gate won. At 12.5% on the largest and best-marked fund in the sector, he’s closer to where the listed BDC index trades. That’s a real test. If BCRED holders won’t sell at a 12.5% haircut while waiting three months for most of their money at par, the retail panic Cox is pricing doesn’t exist. If they do, Gray’s 95-cent senior book has a market price below it.
6. Blackstone Shelves a $3 Billion CFO on Geriatric PE Stakes
Blackstone’s Strategic Partners unit pulled a $3 billion collateralized fund obligation that would have bundled around 700 private equity fund stakes as collateral for rated debt tranches and an equity slice. Roughly 15% of the underlying assets were 15 to 20 years old and just under 10% were older than two decades. Junior debt was offered at 12% and senior at 7.5%, but Blackstone couldn’t find an outside buyer for the equity. Jefferies marketed the deal.
Some 40% of PE net asset value sat in funds seven or more years old in 2025, up from 30% in 2022, per PitchBook. Evercore now expects CFO volume to reach double its May forecast of $30 billion this year. Treo’s Finbarr O’Connor summed up the pricing standoff. “Some of these funds are older than some of our analysts.”
The bottom of the stack has no bid
A CFO works when someone will own the first-loss piece on the collateral. Blackstone offered 12% on the junior debt and still couldn’t place the equity beneath it, which means the market’s view of what 20-year-old PE stakes are worth sits below the number Blackstone needed. This is the same problem as private credit secondaries in a different wrapper. The senior tranches clear because they’re overcollateralized. The residual doesn’t, because the residual is where the marks get tested. Blackstone has $17 billion of theoretical carry sitting in unsold “in-the-money” investments alongside KKR and Carlyle. The CFO was a way to monetize some of that without a sale. It didn’t work, and the assets got a year older.
Deals of Note
Loparex - ~$1B out-of-court restructuring; Monarch and General Atlantic take control, Blue Owl’s $160M second-lien wiped out, first-out reinstated at par, second-out at ~80, remainder to equity; $80M new money
SoftBank - Apollo in talks to upsize loan to $9B from $5.4B for OpenAI investment
Global Loan Agency Services - Oakley Capital secured €450M debt package for buyout of the loan-administration provider
GMI Cloud - Nvidia partner seeking $300M to buy chips for Thailand facility
Akrapoint Commercial Capital - KKR launched mid-ticket equipment finance platform with $350M ABF commitment
Metalock Engineering - Ares backing H.I.G.’s buyout of the Swedish engineering business
Cox Capital tenders - Up to $20M each for BCRED at 12.5% discount and HLEND at 17.5%, expiring Nov. 3
Partners Group - Exploring €800M continuation vehicle for 2018 and 2020 credit funds
Blackstone CFO - $3B collateralized fund obligation on ~700 PE stakes shelved after equity tranche found no buyer
The Reality Check
Loparex gives the market its first fully resolved recovery on a private credit blowup this cycle, and the numbers are instructive. First-out at par, second-out at 80, the rest to equity, and the second-lien at zero. Blue Owl earned S+875 for a few years and lost the principal. Monarch and GA bought the senior paper at a discount and own the company. Those are the two ways to play a stressed credit, and only one of them is lending.
The coverage data reframes every “isolated situation” press line. When the market average is 1.5x and 15% of borrowers already need covenant relief, isolation is a matter of timing. The hike moves the tail. PIK deferral requests doubling in a year is the mechanism by which that tail stays invisible for another few quarters, until a refinancing comes due and, as Moody’s warned this week, the PIK borrower discovers there’s no bid for its new debt.
BlackRock’s legacy platform is now a case study in how a valuation problem spreads. The fund sold half its book at a 10% NAV hit, lost its CEO and COO in consecutive months, faces four lawsuits, and has now cost two former executives a $1 billion seed at a hedge fund that decided the name was radioactive. HPS is running what remains. The Tennenbaum acquisition was eight years ago.
Cox tightening his bid to 12.5% and Blackstone failing to place the equity on a $3 billion CFO are the same signal from opposite directions. Buyers are getting closer to sellers on the good assets and refusing to engage on the old ones. The gates keep paying 75% within 90 days, which makes a 12.5% discount a fair test of whether retail holders are patient or scared. The geriatric PE stakes have no such backstop, and until someone owns the first-loss piece, the $17 billion in unrealized carry stays on paper.