Medley Capital: Insider Buying Plan UpsizedPremium Free
Readers of the BDC News Of The Day will know about the almost daily purchases of Medley Capital ‘s (MCC) shares by Medley Seed Funding I, LLC (“Seed Funding”). Our latest report was an update on June 12th that brought a recap of the buying up to June 7th to 5,312,029 shares, or well over $30mn. Readers who’ve checked out the links we’ve provided to even earlier articles will be aware this buying, which seems to be purchases by Medley Management’s (MDLY) founders and controlling shareholders brook and Seth Taube but is not, is part of a complex scheme between the Medley organization and Fortress Capital and some of its investors. We detailed how the scheme works back in a long post on February 3, 2017. We strongly suggest anyone who is a shareholder in MCC (which is is being invested in ) or MDLY (which is -partly – doing the investing) should review the February 2017 exposition. However, we’ve been noting the unusually high insider purchases that have resulted from the scheme back from September 2016. The initial agreement was penned in June 2016.
The BDC Reporter has been wondering how long this buying would go on for. We now know that Seed Funding – like the Energizer battery before – will “keep on going and going”. The parties to the June 2016 agreement have just agreed to a major expansion of the buying program at the first year anniversary. Here are the details, which continue to be revealed in disclosures but without any press releases by any of the parties involved.
BIGGER AND LONGER
According to a June 12th, 2017 filing , Medley LLC, a subsidiary of MDLY amended its Master Investment Agreement with DB MED INVESTOR I,LCC and DB MEDINVESTOR II, LLC (the caps are theirs). The latter organizations are vehicles affiliated with Fortress. The key changes were : i) to extend the life of the special purpose vehicle which is buying the stock to ten years from seven. ii) to increase the amounts involved to $53.8mn.
The 8-K filing is relatively brief and here is a full copy, for the avoidance of any doubts:
On June 6, 2017, Medley LLC (“Medley”) entered into an amendment to its Master Investment Agreement (the “Agreement”) with DB MED INVESTOR I LLC and DB MED INVESTOR II LLC (the “Investors”). The Agreement, as amended, provides that, among other things, the parties have committed to increase their investment up to approximately $53.8 million in new and existing Medley managed funds (the ‘‘Joint Venture’’) to support growth of the platform. In addition, the Agreement extends the Joint Venture from 7 years to a 10 year term from the Closing Date (as defined in the Agreement). Medley has committed to contribute up to approximately $13.8 million, and an interest in STRF Advisors LLC, the investment advisor to Sierra Total Return Fund, in exchange for common equity interests in the Joint Venture which provides for 85% of the profits of the Joint Venture after the preferred distribution. The Investors have committed to invest up to $40 million in exchange for preferred equity interests in the Joint Venture. On account of the preferred equity interests, the Investors will receive an 8% preferred distribution, 15% of the Joint Venture’s profits, and all of the profits from the contributed interest in STRF Advisors LLC. Medley has the option, subject to certain conditions, to cause the Joint Venture to redeem the Investors’ interest in exchange for repayment of the outstanding investment amount at the time of redemption, plus certain other considerations. The Investors have the right, after ten years, to redeem their interests in the Joint Venture. The Agreement does not contain any mark-to-market provisions which would force liquidation of any assets. Total contributions to the Joint Venture amounted to $27.5 million through March 31, 2017.
- Medley LLC, which is owned by MDLY, has extended and doubled the size of its unusual stock buying arrangement between the public management company and Fortress Capital shareholders.
- In aggregate, this special purpose vehicle will buy $40mn in Medley Group fund shares, mostly in MCC.
- The result is likely to be short term support for MCC’s stock price, and little likelihood of a change in the Investment Advisor, who was almost evicted previously.
- In a worst case scenario – should MCC’s performance sharply deteriorate in the next ten years, there is a risk the vehicle could be unwound and all shares purchased dumped into the market.
- MCC shareholders – both current and future – are left to evaluate the BDC’s fundamental outlook, which remains in question.
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