Elyria Foundry: Company Sold

All the assets of BDC portfolio company Elyria Foundry has been sold to TRM Equity as of January 25,2021. Terms were not announced. “Elyria Foundry, specializes in ductile iron castings up to 200,000 pounds serving a broad set of markets including defense, oil and gas, construction equipment and mining. Elyria Foundry has operated since the early 1900’s and has developed a strong technical and metallurgical team that drives its success”. The company is based in Ohio.

This should be good news for the only BDC with exposure – Saratoga Investment (SAR). This is an investment that dates back to 2008 ! As of November 2020, SAR had a $1.3mn second lien loan, bearing a 15% PIK yield to Elyria and a $9.7mn equity stake, valued at just $0.730mn.

We imagine that SAR’s management has been aware of the acquisition for some time. That might mean the latest valuation is up to date and proceeds received will not be sufficient to do much more than repay the debt and allow for a small payout on the equity, or $2.0mn in all. That would result in a realized loss of -$9mn. However, we just don’t know and SAR’s proceeds might be higher or even lower (though we don’t think so). The most notable part of this story is that the long relationship between SAR and Elyria seems finally to be coming to an end and should release some capital back to the BDC.

We are re-rating Elyria – because now sold – to a CCR 6 rating from CCR 4. We’ll have to wait till SAR reports February 2021 quarterly results before discovering if at the end of the road with Elyria what the final bill looked like.