Blackstone Secured Lending Fund (BXSL) has reported a 2.4% decline in net asset value (NAV) per share to US$26.26 for Q1 2026, while BlackRock TCP Capital Corp recorded a sharper 5% fall to $6.72, with both funds attributing the markdowns to deteriorating loans across their enterprise software holdings.
A day earlier, two Blue Owl Capital funds posted their own NAV cuts, and in February Blue Owl had already moved to offload $1.4 billion in assets to cover elevated withdrawal requests at a third of its vehicles.
The buyout hangover
The losses trace back to a concentrated period of private equity deal-making between 2020 and 2022, when sponsors acquired technology businesses at high revenue multiples, financing those transactions with direct lending at near-zero rates.
In several cases, lenders structured facilities against annual recurring revenue rather than realised cash flow, underwriting loan repayment against forward growth projections rather than existing earnings.
Medallia illustrates the mechanics of where that approach has landed, taken private by Thoma Bravo for $6.4 billion in 2021 and now carrying close to $3 billion in debt, with annual servicing costs running well above the company's roughly $200 million in earnings.
That gap widened further after lenders terminated a payment-in-kind arrangement at the end of 2025, requiring Medallia to cover all interest obligations in cash, adding roughly $100 million to its annual debt burden.
Blackstone holds approximately $1.5 billion of that exposure and has marked the position down by more than 30%, with the restructuring now ranking among the largest private credit workouts on record, with Thoma Bravo expected to hand ownership to lenders via a debt-for-equity swap.
In March, Thoma Bravo acknowledged it had overestimated Medallia's growth trajectory and that the acquisition price was not supported by the company's subsequent performance.
AI as a credit event
Medallia is not the only software-sector credit under pressure, with artificial intelligence increasingly cited by fund managers as a structural threat to the revenue models underpinning a broader set of private credit positions from the same lending vintage.
AI is reducing pricing power and accelerating customer attrition across enterprise software categories that lenders originally underwrote as stable, long-duration revenue streams.
BlackRock TCP booked net realised losses of $32.7 million in the quarter, alongside $2 million in unrealised losses tied to debt facilities at SaaS firm Pluralsight and other portfolio names.
BXSL's non-accrual rate - the share of facilities where borrowers have stopped meeting interest obligations - sat just above 3% at March quarter-end, with nearly half the fund's valuation reductions tied to two names that lapsed into non-accruing status and the remainder spread across the book.
About 20% of BXSL's portfolio sat in software companies at fair value at quarter-end, while BlackRock TCP's exposure to the sector stood at 27.2%, according to their respective quarterly filings.
BXSL maintained its dividend at 77 cents per share for the quarter, while BlackRock TCP declared a dividend of 17 cents - and bought back more than 156,000 shares at a total cost of $600,000 since April 1 under its existing repurchase program
