The fall of 2025 witnessed several high-profile bankruptcies that surprised the market, notable for both their suddenness and, in some cases, allegations of fraud. Pressure on consumer discretionary income —particularly among lower-income households—has been another theme. Of the top ten filings since September, seven were consumer-related, including Blink Fitness and Forever 21.
The November 4 Chapter 7 liquidation of Renovo Home Partners, with estimated liabilities of $100–$500 million, drew particular attention because it sat at the intersection of leveraged finance, private credit, and valuation. Renovo’s liabilities included a $150 million private credit loan from BlackRock TCP Capital Corp., a publicly traded BDC, marked at 100 as of September 30—just five weeks before the liquidation.
Backed by Audax Private Equity, Renovo was formed in January 2022 through the merger of three home improvement companies. While presumably solvent at inception, subsequent acquisitions and rising interest rates in 2022–2023 weighed on demand for home improvements as the company’s interest burden rose. Execution by management may have been an issue too. TCPC extended its $150 million loan (SOFR + 650 bps) in April 2024, which was carried at par at each subsequent quarter-end even though the company’s performance was deteriorating such that lenders converted some debt to equity in the spring of 2025 and the company elected to PIK in lieu of cash interest payments.
It is unclear whether Renovo obtained a solvency opinion when TCP extended the loan or when the platform was created. Regardless, the November 2025 bankruptcy filing raises questions about solvency and valuation at the time of the 2024 financing.
If (or had) the company obtained a solvency opinion, the following four questions would have been addressed:
Does the fair value and present fair saleable value of assets exceed total liabilities, including contingencies?
This balance sheet test is a poorly named term for valuation whereby the subject company’s debt-free value is estimated using DCF, Guideline Public Company, Guideline M&A and Transactions (i.e., prior transactions or LOIs for the subject) methods. Sometimes, the NAV method will be utilized, too, for entities that are more akin to holding companies when assets can be marked to market.
Will the company be able to pay its liabilities as they mature?
This assesses whether projected cash flow can support debt service, considering:
Modeling can be complex or high-level, but assumptions about revenue growth and operating margins are often the key determinants for the cash flow test, which is based on common sense rules. If margins collapse, debt service is in trouble, and if it is steady or improves, then there presumably will not be issues.
Does the company have unreasonably small capital to operate?
Even if debt service is projected to be adequate, thin margins may leave little room for shocks. Adequacy is judged by pro forma leverage metrics (Debt/EBITDA, EBITDA/Interest) versus market and rating agency benchmarks.
Do assets exceed the sum of liabilities and statutory capital?
This test mirrors the balance sheet approach but includes capital as defined under Section 154 of Delaware corporate law—namely, par value or total consideration received for stock issuance by Delaware-chartered companies.
A forthcoming post will address how private credit is marked. The Renovo case stands out because TCPC marked its loan at par for five quarters, only to prospectively write it down to zero by year-end 2025. The situation has fueled existing widespread skepticism toward private market valuation practices—sometimes dubbed mark-to-myth. Ultimately, every asset marked-to-model becomes marked-to-market once it trades or, in the case of credit, is (or is not) repaid in full.
Mercer Capital is a valuation and transaction advisory firm that values private equity and credit investments and provides solvency opinions for corporate boards, lenders, and other stakeholders involved in highly leveraged transactions.
