SDNY Office Examines Valuation Differences in Private Credit Market

The U.S. attorney for the Southern District of New York said the office is reviewing possible valuation discrepancies in the private credit market. The prosecutor addressed the issue Wednesday at the Bloomberg Global Credit Forum in New York.

The prosecutor said differences in how assets are marked on balance sheets were central to recent issues at First Brands Group, Tricolor Holdings, and 777 Partners. "Where you look is when you have a market where there's a bunch of participants and a large portion of them have it marked at say 75 and one or two have it marked at 95," the prosecutor stated.

"That's a place where you say, okay, I need to ask some questions about the folks who are marking it at 95, particularly if they're making fees off it," the prosecutor added.

The prosecutor also cautioned against overreaction to private credit developments and said the sector had supported the U.S. economy. No transmission mechanism linking private credit problems to the broader economy was identified at this time.

The Justice Department's Manhattan office has sought information about BlackRock TCP Capital Corp. in recent months, according to Bloomberg. The prosecutor previously raised concerns about how firms value private assets.