Two of the biggest names in private credit have taken the keys to a struggling film equipment supplier, in a deal that shows how lenders are increasingly willing to step in and run companies that can't pay their debts.
HPS Investment Partners, which is closely linked to BlackRock, and Oaktree Capital, another major alternative asset manager, have taken control of MBS Group after the company defaulted on its obligations. According to the Financial Times, creditors will swap hundreds of millions of dollars of debt for equity and line up $40 million in new funding to keep the business going.
What is MBS Group?
MBS Group is a supplier of film and television equipment, providing cameras, lighting, and other production gear to studios and crews. The company has been a behind-the-scenes player in the entertainment industry, but like many firms that depend on discretionary spending by studios, it has faced a tough environment as production budgets tighten and financing costs rise.
The deal is a classic example of a debt-for-equity swap, a process where lenders forgive a company's debt in exchange for ownership. When a borrower defaults, creditors often have two choices: force a liquidation and hope to recover some cash, or take control and try to turn the business around. In this case, HPS and Oaktree have chosen the latter, betting that MBS Group can be stabilised with fresh capital and a cleaner balance sheet.
Why private credit is in the spotlight
Private credit firms like HPS and Oaktree have grown rapidly over the past decade, stepping in where traditional banks have retreated. They lend to mid-sized companies that may not have access to public bond markets, often charging higher interest rates in exchange for more flexible terms. But when those loans go bad, these firms are increasingly willing to take ownership rather than write off the debt.
This trend is not unique to MBS Group. Across the economy, private credit lenders have been forced to deal with a wave of defaults as higher interest rates squeeze companies that took on too much debt during the cheap-money era. In many cases, lenders are choosing to convert debt into equity, hoping to recover more value than they would in a bankruptcy auction.
Similar dynamics have played out in other sectors. For example, airBaltic recently sought a bondholder lifeline with a debt-for-equity swap, and Italian Sea Group launched a sale process as insolvency loomed. These deals show that when companies run out of cash, creditors are often the ones calling the shots.
What it means for investors
For everyday investors, this deal is a reminder that private credit is not a risk-free asset class. While these funds often promise steady returns, they carry the risk of default, and when defaults happen, the recovery process can be messy and slow.
If you hold shares in a company that goes through a debt-for-equity swap, your ownership is typically diluted or wiped out entirely. Existing shareholders usually end up with little or nothing, as creditors take the bulk of the equity. That's a key reason why such deals are often seen as a last resort for struggling companies.
For those invested in private credit funds, the news is more nuanced. Taking control of a defaulted borrower can be a sign that the lender is trying to protect its investment, but it also means the fund is now in the business of running a company, which is a different skill set from lending. The outcome will depend on whether HPS and Oaktree can turn MBS Group around and eventually sell it or take it public.
The broader takeaway is that the era of easy money is over, and companies that loaded up on debt when interest rates were near zero are now feeling the pinch. As long as borrowing costs stay elevated, more debt-for-equity swaps are likely, and investors should be prepared for more headlines like this one.
In the entertainment equipment space, the deal could also signal consolidation. With deep-pocketed owners now in control, MBS Group may look to acquire rivals or expand its services, which could reshape the competitive landscape for film suppliers.
For now, the focus will be on whether the $40 million in fresh funding is enough to stabilise the business and whether HPS and Oaktree can find a profitable exit. Their success or failure will be a test case for the private credit industry's ability to manage distressed assets.
