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Medallion Financial: Latest Insider Purchase

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The BDC News Of The Day has been reporting on frequent insider purchases at Medallion Financial (MFIN)  – almost all by Director David Rudnick – for some time. There is very little new information about the troubled BDC. Even a recent filing about the status of MFIN’s financing arrangements with its lenders was inconclusive. On June 13, there was another Form 4 filing:

HERE WE GO AGAIN

As before the insider purchase was by Mr Rudnick, who bought $13,049 shares at $2.50 a share,  a slightly higher price than previously paid while acquiring what is now 194,802.

CONFOUNDED

The BDC Reporter does not know what to make of these significant purchases. The market does not share Mr Rudnick’s enthusiasm, and the stock price is flat. As we write this MFIN trades one penny off what Mr Rudnick just paid for his 13,049 shares.

We do note that there have been no purchases (or sales) by anybody else at MFIN.

We do have a small speculative position in MFIN,  which we’ve mentioned in prior posts. We continue to be Long on the thesis that Mr Rudnick, as a Director of the BDC, has better information available than we do and is willing to part with his hard earned Roth IRA monies to buy the stock. Moreover, we have read the sudden enthusiasm which the Mursteins had to discuss the Company’s future outlook as another positive sign. We also read the BDC’s recent 10-Q. In the past there were often several distressing items tucked away in the disclosures. In this case we found nothing new, albeit that MFIN continues to benefit from a generous approach by regulators to the valuation of Medallion Bank,  and the shift from taxi lending to high yield consumer lending is far from complete. As mentioned above, we do not know if the BDC’s debt obligations – there are several – can be restructured with the SBIC and other lending groups. On balance, though, we decided to press ahead. We bought one position and sold shortly after for a decent gain. We continue to have another position.

We also purchased Medallion Financial’s Baby Bond with the ticker MFINL, based on much of the same thinking, which we acquired at $21.90  and continue to hold and now trades at $23.00, two dollars off par. MFINL has been as low as $13.89.  The Baby Bond could trade back above par, but if the issuer takes a turn for the worse could go right back down. Asset coverage in a Worst Case is not inspiring even for a debt instrument, which underscores how much MFIN has begged, borrowed and pawned to navigate this drastic change in its business and it’s bold/foolish focus on taxi medallion lending. In three cities. We consider our investment in MFINL also speculative. 

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