BlackRock TCP Capital’s Tumble Was More Than Just Private Credit Risk

In late January, BlackRock TCP Capital—a business-development company somewhat akin to a closed-end fund—reported that it would be slashing the net asset value of its shares by 19% for the fourth quarter of 2025. That high-profile trouble in a red-hot private credit market may not be a sign that a broad comeuppance is already on our doorstep, though. The size of the write-down and the ensuing selloff of the BDC’s publicly traded shares captured some private credit burning trees but missed the forest fire: financial leverage.

Most private credit vehicles borrow heavily to buy more loans. That would allow one to take an underlying portfolio producing a yield between roughly 11% and 12% and nearly doubling that—before fees, interest, and losses bring it down to the neighborhood of 14% or 15%. That same leverage magnifies losses when price marks move against you. At the end of September 2025, borrowing increased the market exposure of TCPC’s portfolio to more than 230% of what it would have been without leverage. That translated into roughly $740 million of net assets alongside nearly $1 billion of borrowed money—a setup that turns worrying valuation adjustments into a nasty net asset value drop. Had the same portfolio been unlevered, its NAV write-down might have looked more in the neighborhood of an 8% loss. Painful, but not nearly as dramatic.

BlackRock attributed roughly two‑thirds of the drop to six problematic companies, but the exposures weren’t just credit—equity and equitylike stakes amplified the move. E-commerce aggregator Razor looked like classic credit stress. But education-tech provider Edmentum had equity exposure to the tune of 1.9% of the portfolio. Overall, the BDC had 9.9% in equity exposure at the end of 2025’s third quarter.

Private direct lending is not a natural substitute for a conventional bond portfolio. It typically finances highly leveraged middle‑market borrowers with privately placed loans, and big losses don’t require a default. A change in recovery estimates, covenants, or sponsor assumptions can trigger them, too. Layer equity on top—warrants, preferreds, common stock—and you add even more market sensitivity, so small valuation changes can produce big NAV swings. In a levered BDC, those mark‑to‑model wobbles don’t average out; they cascade.

Industry messaging presents another uncomfortable truism. For the past couple of years, the public case for private credit has leaned hard into the “safer” corners—larger, higher‑rated corporate borrowers who choose private markets for speed or certainty, and asset‑backed finance with strong collateral and bankruptcy‑remote structures. That narrative is accurate as far as it goes, but sidesteps the pronounced risks of private direct lending to indebted middle‑market companies, a large slug of which are owned by private equity funds. BlackRock TCP Capital’s fourth quarter is a reminder that when leverage, borrower fragility, and equity exposure intersect, the downside can be steep—well before presentations about “defensive positioning” and “asset‑backed resilience” have time to age.