A closed Caldrion loan, shown under its project code name. The borrower and sponsor are not named. Terms are as of closing; returns are our underwriting targets, not realized results.
Turnaround term loan with PIK · $26.0M · 61% of collateral · S+850
At a glance
| Borrower | Family-owned precision machining company making aerospace and defense structural parts; 240 employees; AS9100-certified and ITAR-registered |
| Loan | $26.0M senior secured term loan |
| Collateral | Owned 210,000 sq ft plant ($14.5M); 64 CNC machines (OLV $19.8M, forced liquidation value $14.6M); receivables; inventory |
| Leverage | 61% of total collateral value; 1.15x coverage even at forced-sale values |
| Term | 30 months plus one 6-month extension |
| Pricing | S+850 (≈12.25%): 9.25% cash plus 3.00% PIK for months 1–12, then all cash; 1.75% origination; 2.00% exit fee |
| Timeline | Closed day 38, inside the bank’s 90-day forbearance window |
The situation
In 2025 the company lost its largest program, about 30% of revenue, when the aircraft maker brought that part in-house. Revenue fell from $58M to $41M, and EBITDA went from $7.5M to negative $1.2M. The bank moved the loan to its special-assets group, charged default interest, and gave the company 90 days to refinance.
The board brought in a turnaround CEO, who cut $3.8M of fixed costs and won two new defense programs with $36M of awarded backlog ramping through 2027. The business was about a year from health, but no bank would lend on negative EBITDA.
Collateral
| Collateral | Value | Advance | Lending value |
|---|---|---|---|
| Plant (210,000 sq ft) | $14.5M appraised | 60% | $8.7M |
| 64 CNC machines (5-axis machining centers, Swiss-type lathes, gantry mills, measuring machines) | $19.8M OLV | 70% | $13.9M |
| Eligible receivables (defense prime contractors) | $5.2M | 85% | $4.4M |
| Inventory (titanium, aluminum, work in progress) | $3.0M | 0% | – |
| Total | $42.5M | $27.0M |
Uses
| Uses | $M |
|---|---|
| Repay bank | 21.0 |
| Working capital for the program ramp (tooling, raw material) | 2.6 |
| Cash to the balance sheet | 1.5 |
| Fees and closing costs | 0.9 |
| Total | 26.0 |
Structure
- For the first 12 months, 3% of the interest is paid in kind (added to the loan) instead of cash, so cash interest matches what the business can pay during the ramp. PIK is capped at $0.8M.
- Management sends a 13-week cash flow forecast every week. A variance above 15% triggers a call.
- The company must keep at least $2.0M of liquidity at all times.
- EBITDA milestones: trailing EBITDA of at least $0 by month 9, $3.0M by month 15 and $5.0M by month 21.
- Caldrion has a board observer seat, and the loan includes a key-person clause on the turnaround CEO.
- Every machine is scheduled by serial number. None can be sold or moved without consent, and each gets an annual desktop appraisal.
- Because of ITAR, any foreclosure sale must go to ITAR-registered US buyers. We lined up an equipment auctioneer with defense experience during diligence.
- A sale-leaseback of the plant is allowed with no prepayment penalty, as long as 100% of the proceeds repay the loan.
Risks and mitigants
| Risk | Mitigant |
|---|---|
| The turnaround fails | 1.15x coverage at forced-sale values |
| Program ramp slips | PIK, liquidity covenant, backlog from defense primes |
| Machine values fall | Deep resale market for 5-axis equipment; independent appraisal |
| Customer concentration | The two new programs diversify revenue |
Forced-sale math
A quick sale of the plant (about $10.9M), machines at forced-liquidation value ($14.6M), receivable collections (about $4.4M) and inventory (about $0.9M) add up to about $30.8M. The maximum loan balance with PIK is about $26.8M.
Exit and returns, as underwritten
One path is a third-party sale-leaseback of the plant (about $14M) in year two, which repays more than half the loan, with a bank refinancing the rest once trailing EBITDA passes $5M. The other is a sale to a strategic buyer consolidating aerospace suppliers. Target: about a 13.5–14% IRR.
See all our transactions, the twelve loans compared and our criteria.
This case study is provided for information only. It is not an offer of securities or investment advice, and targeted results do not indicate future results.