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Medallion Financial: Loan Amendment

BACKGROUND:  Medallion Financial’s (MFIN) stock price dropped to $1.77 on February 9th, 2017 after a barrage of bad news that we’ve covered extensively on the BDC Reporter. However, in the days following the stock price has risen every day, to reach $2.34 at the close on February 17, 2017. That’s a 32% jump ! We wondered why and had a look at recent filings for some clues. Here’s what we found: On February 15, 2017: Taxi Medallion Loan Trust III, an indirect subsidiary of Medallion Financial, negotiated an amendment to its loan agreement with DZ Bank. Here are the key terms for those of you who want to dive into the details:

Medallion Financial SEC Filing

SECTION 2. Amendments to the Loan Agreement. Effective as of the Effective Date (as defined below), the Loan Agreement is hereby amended as follows:

2.1 Clause (b) of the definition of “Financial Covenant Default” set forth in Section 1.01 of the Loan Agreement is hereby amended and restated in its entirety to read as follows:

“(b) the Medallion Funding Net Income for any fiscal year ending after December 31, 2016 shall be equal to or less than zero.”

2.2 Clause (d) of Section 6.01 of the Loan Agreement is hereby amended and restated in its entirety to read as follows:

“(d) as of any date of determination on or after April 30, 2017, (i) the average Medallion Valuation Amount of the Medallion Loans for the most recent Monthly Period for which such average has been reported hereunder (including any period before April 30, 2017) shall have declined by 15% or more during such Monthly Period and (ii) the Delinquency Rate for the most recent Monthly Period for which such Delinquency Rate has been reported hereunder is greater than or equal to 6%; or”


2.3 Clauses (f) and (g) of Section 6.02 of the Loan Agreement are hereby amended and restated in their entirety to read as follows:

“(f) as at the end of any Monthly Period ending on or after April 30, 2017, the average of the Delinquency Rates for such Monthly Period and the immediately preceding three Monthly Periods shall exceed 15.0%; or

(g) as at the end of any Monthly Period ending on or after April 30, 2017, the average of the Default Rates for such Monthly Period and the immediately preceding three Monthly Periods shall exceed 9.0%; or”

SECTION 3. Amendment to the Servicing Agreement. Effective as of the Effective Date (as defined below), Clause (b) of the definition of “Servicer Financial Covenant Default” set forth in Section 1.01 of the Loan Agreement is hereby amended and restated in its entirety to read as follows:

“(b) the Servicer Net Income for any fiscal year ending after December 31, 2016 shall be equal to or less than zero.”

SECTION 4. Condition Precedent. This Amendment shall become effective as of December 31, 2016 (the “Effective Date”) upon the Agent’s receipt of a copy of this Amendment duly executed by the Borrower, the Lender, the Transferor and Parent.

BDC Reporter’s View About Which Type of Investor Is Best Suited

 

We’ve not had the time or the inclination to compare the changes against the original loan agreement.

Nonetheless, clear from the language and the fact there is an amendment at all, DZ Bank appears to be “working with” its borrower, which is encouraging from a shareholder’s perspective.

This may account for the recent upsurge in MFIN’s stock. Or maybe not.

ROLLER COASTER

MFIN remains highly volatile and suitable only for the most speculative investors and those with better information than the delayed public filings.

We offer up the Yahoo Finance chart for the past 6 months to illustrate that MFIN has had similar bursts of price enthusiasm 7 times before dropping to yet a new low.

This time may be the charm. Only time will tell.