Major investment firms Blackstone and BlackRock reported declines in their private credit funds during the first quarter, citing markdowns on troubled loans across various sectors. According to earnings disclosures, Blackstone Secured Lending Fund's net asset value per share dropped 2.4% to $26.26 at fair value, while BlackRock TCP Capital Corp saw a steeper 5% decline to $6.72 per share. The markdowns reflect mounting pressure from troubled loans linked largely to software companies facing disruption from artificial intelligence advances. Investors have taken a closer look at the portfolios of private credit funds known as business development companies, as advances in artificial intelligence threaten the business models of companies in the software sector.
Software companies represented significant exposure in both funds' portfolios, with about 20% of Blackstone Secured Lending Fund's portfolio in software companies at fair value at the end of March, while 27.2% of BlackRock TCP's portfolio was in that sector. Executives for Blackstone's fund addressed the non-accrual rate on an earnings call, revealing that almost half of the fund's loan markdowns in the quarter were tied to two names that became non-accruing, with the remaining markdowns spread across the portfolio and tied in part to concerns around AI's disruption of software businesses. The fund's non-accrual rate, a measure of loans significantly behind on interest payments, rose to just over 3% in the quarter.
One of Blackstone's largest troubled loans involved software company Medallia, with executives saying the firm was progressing through a restructuring process. The company declared a quarterly dividend of 77 cents per share, unchanged from previous quarters, despite the pressure on valuations. Blackstone executives revealed plans to invest new capital in the business with partners to delever Medallia's balance sheet and invest in new AI features. The fund also disclosed that repayments in its portfolio totaled $450 million during the quarter, while new investments stood at nearly $325 million. BlackRock TCP recorded $32.7 million in net realized losses and another $2 million in unrealized losses, largely tied to troubled loans involving software company Pluralsight and other borrowers.
Despite the markdowns, BlackRock TCP has been actively repurchasing shares, buying back more than 156,000 shares at a total cost of $600,000 since April 1 as part of its previously approved company repurchase plan. The fund declared a dividend of 17 cents for the coming quarter. The earnings updates from Blackstone and BlackRock followed similar results from private credit funds managed by Blue Owl Capital, with both Blue Owl Capital Corp and Blue Owl Technology Finance Corp also reporting declines in NAV per share earlier this week. Investor concerns around liquidity and credit quality in the private lending space have intensified in recent months, with Blue Owl selling $1.4 billion worth of assets in February to improve liquidity after elevated investor withdrawal requests.
