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.
NAV loan · $40.0M · 13% LTV · S+650
At a glance
| Borrower | A holding company (SPV) that owns the remaining portfolio of a 2017-vintage, $400M lower-middle-market buyout fund, with a guaranty from the fund |
| Collateral | Pledge of the SPV’s equity in 8 portfolio holding companies (NAV $310M), plus control of the accounts that receive distributions |
| Loan | $40.0M delayed-draw term loan |
| Leverage | 12.9% LTV (13.9% on eligible NAV); covenant maximum 25% |
| Term | 36 months plus one 12-month extension |
| Pricing | S+650 (≈10.25%); 1.00% origination; 0.50% unused fee |
| Timeline | 6 weeks, mostly valuation work on all 8 companies |
The situation
The fund was in year nine, after a two-year extension its investors approved, and exits had slowed. Two portfolio companies, a commercial HVAC services platform and a specialty insurance brokerage, had acquisitions under letter of intent needing $22M and $14M of equity.
The fund’s reserves were used up, and its investors wouldn’t fund a capital call. A continuation vehicle would have taken 6–9 months and would likely have priced below NAV. Without the follow-on money, both companies would have lost deals that increase their value.
Uses
| Uses | $M |
|---|---|
| HVAC platform add-on | 22.0 |
| Brokerage add-on | 14.0 |
| Interest reserve | 2.5 |
| Fees and expenses | 1.5 |
| Total | 40.0 |
Eligible NAV
| Portfolio | NAV |
|---|---|
| Top 3 companies | $161M (52%) |
| Other 5 companies | $149M |
| Less: NAV above the 25% single-company cap | ($22M) |
| Eligible NAV | $288M |
Structure
- Proceeds can only fund value-creating follow-on investments, not distributions to the fund’s investors.
- Cash sweep: 75% of net distributions go to Caldrion while LTV is above 10%, and 50% once it falls below 10%.
- LTV ladder: above 20%, the sweep goes to 100%. Above 25%, the fund has 60 days to cure through new equity or an asset sale. Above 30%, it’s an event of default.
- At least 6 companies must remain in the borrowing base, with no single company above 25% of eligible NAV.
- The fund manager marks values quarterly. We can commission an independent valuation once a year and whenever a trigger is hit.
- Our claim sits behind each portfolio company’s own debt, so underwriting uses equity values net of that debt and stress-tests every company’s capital structure.
- The loan includes a key-person event, approval from the fund’s investor advisory committee, and a ban on new fund-level debt.
Risks and mitigants
| Risk | Mitigant |
|---|---|
| Ranks behind portfolio-company debt | NAV is already net of that debt; stress tests; 13% LTV |
| Manager’s valuations are stale or optimistic | Independent valuation rights; haircuts |
| Exits take longer | 36+12 month term; cash sweeps; 3 companies already in sale processes |
| Concentration | 25% single-company cap; minimum of 6 companies |
Exit and returns, as underwritten
Three companies with combined NAV of about $130M are in or near sale processes, expected to close in 12–24 months. At a 75% sweep, the first two exits alone repay the loan. Target: about an 11% IRR. Our own private equity team gives us an edge in valuing these companies.
Downside
If NAV falls 40% to $186M, LTV is 21.5% and the sweep goes to 100%, with roughly 4.6x coverage remaining.
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.