We learned from a trade publication that Audacy Corporation has been sold to Australian firm Electro Optic Systems for $10mn. That’s important to the only BDC with exposure – Horizon Technology (HRZN) – which has $3.9mn invested in Audacy. That exposure is in the form of two loans (maturing in 2020 and 2022) and in common stock. As of September 30, 2019 – and as discussed in an earlier article – the debt was on non accrual and had been since the IIQ 2019. HRZN has written down its investment to $1.5mn.
We get the feeling the $10mn being received from the buyer will not cover all the debt outstanding but – given that Audacy is a private company – we don’t know for sure. We’re guided by the current market value of the two loans mentioned before, which are trading at a (58%) discount to par. Those numbers suggest that the net amount HRZN can hope to receive from the sale of Audacy is in line with the most recent valuation. If that’s true, expect to see a realized loss of ($2.4mn) booked in the IVQ 2019 or IQ 2020, but no further loss beyond what was already provided for.
We will circle round once the final outcome is known from HRZN, and will be in a better position to undertake a post-mortem on this credit that was first booked only in the IIQ 2018 and started to shows signs of trouble only months after HRZN became involved. For the BDC, this represents a loss of under $0.4mn in annual investment income – some of which will presumably be offset by proceeds from the sale of the business – and a modest realized loss equal to 1.1% of equity capital at par.