17 years of unwavering commitment to our investors
When EdgePoint was launched in November 2008, we made a simple promise to put our investors first.
Seventeen years later, that commitment remains at the heart of everything we do.
This week in charts
Corporates yielding less than government bonds
Spending on data center construction
Relative performance of Quality Stocks vs. the market
Residential electricity prices
S&P 500 Index – sector composition since 1970
U.S. high-yield bond and leveraged loan universe
Leveraged loan index and high-yield bond index sector breakdown
M&A volume - % of private equity
Small credit rating providers
Privately-rated securities
Ratings per analyst
S&P 500 Index Concentration concentration at record levels
S&P 500 Index – Momentum crowding at the 98.9th percentile
BlackRock Faces 100% Loss on Private Loan, Adding to Credit Market Pain
About a month ago, BlackRock Inc. deemed the private debt it had extended to Renovo Home Partners, a struggling home improvement company, to be worth 100 cents on the dollar. As of last week, the firm had a new assessment: zero.
The drastic revision comes as Dallas-based Renovo — a roll-up of regional kitchen and bathroom remodeling businesses created by private equity firm Audax Group in 2022 — abruptly filed for bankruptcy last week, indicating it plans to shut down.
BlackRock held the majority of Renovo’s roughly $150 million of private debt, while Apollo Global Management Inc.’s MidCap Financial and Oaktree Capital Management held smaller chunks, according to people with knowledge of the matter, who asked not to be identified discussing a private transaction.
It was no mystery Renovo was in a tough spot. In April, lenders had agreed to take losses and convert some of their loans into equity as part of a recapitalization that was supposed to give the company a chance to turn its business around, the people said. In the third quarter, they also allowed for deferred cash interest payments on its restructured debt, an arrangement known as payment-in-kind, regulatory filings show.
Yet at the end of September, funds managed by BlackRock and MidCap Financial were still marking the new Renovo debt at par, which typically indicates investors expect to be paid back in full.
It took only a few weeks for the situation to quickly unravel.
While the Renovo debt represents a sliver of total assets for the three lenders, its sudden collapse strikes at the heart of what critics see as a major vulnerability in the private credit market: the disconnect between the valuation of illiquid loans and the performance of the underlying companies. Zips Car Wash similarly enjoyed marks that were near par from its private credit lenders months before filing for bankruptcy earlier this year.
It also comes in the wake of the collapses of subprime auto lender Tricolor Holdings and car-parts manufacturer First Brands Group, which have caught investors off guard. They’ve stoked fears there could be more pain to come in credit markets and led Wall Street executives to trade shots as to who is to blame for poor underwriting standards.
Renovo’s main borrowing entity, HomeRenew Buyer Inc., filed for Chapter 7 bankruptcy last week, listing liabilities of between $100 million and $500 million and assets of under $50,000.
This week’s fun finds
With the weather turning colder, Jin (with an assist from Adam) brought the heat with a Hakka moai. Many of us broke into smiles at the spread (and a few broke into a sweat), but everyone went back to their desks full.
The Hidden Math of Ocean Waves Crashes Into View
The best perk of Alberto Maspero’s job, he says, is the view from his window. Situated on a hill above the ancient port city of Trieste, Italy, his office at the International School for Advanced Studies overlooks a broad bay at the northern tip of the Adriatic Sea. “It’s very inspiring,” the mathematician said. “For sure the most beautiful view I’ve ever had.”
Italians call Trieste la città della bora, after its famed “bora” wind, which blows erratically down off the Alps and over the city. When the bora is strong enough, it drives the waves into reverse. Instead of breaking against the docks, they stream away from the city, back toward the open sea.
But they never actually get there. Watching from his window on these gusty days, Maspero can see the retreating waves slowly disperse as they exit the port, eventually giving way to a calm, still surface.
The equations that mathematicians use to study the flow of water and other fluids — which Leonhard Euler first wrote down nearly 300 years ago — look simple enough. If you know the location and velocity of each droplet of water, and simplify the math by assuming there’s no internal friction, or viscosity, then solving Euler’s equations will allow you to predict how the water will evolve over any time period. The rich menagerie of phenomena we see in the world’s oceans — tsunamis, whirlpools, riptides — are all solutions to Euler’s equations.
But the equations are usually impossible to solve. Even one of the simplest and most common kinds of solutions — one that describes a steady train of gently rolling waves — is a mathematical nightmare to extract from Euler’s equations. Until about 30 years ago, the bulk of what we knew about these waves came only from a mix of real-world observations and guesswork. For the most part, proofs seemed like a fantasy.
