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Medallion Financial : New Board Member – UPDATED

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We wrote the following post on July 27 2017  in the afternoon. In the evening we revisited the filings and found out more , which is available in UPDATE below:

On July 27, 2017 Medallion Financial (MFIN) announced the addition of a new Board member. The BDC Reporter provides details, then speculates as to what this might mean:


NEWS

The board has been increased from 7 members to 8

The new Board member added will serve as one of five “independent” directors. There are 3 “interested” directors.

The new director, whose appointment begins immediately, is John Everets.

Mr Everets will join the Audit Committee, typically the purview of independent directors.

The new Board member has a distinguished track record in the banking industry. Most recently he was involved in the successful recapitalization and turnaround of the Bank of Maine as CEO.


ANALYSIS

This is an interesting development but not one with clear answers.

Why would MFIN suddenly expand its Board and with a bank turnaround specialist who has proven experience dealing with the regulators ?

The BDC Reporter can speculate in any number of ways.

Maybe a prospective new investor has required the addition of more specialized oversight in advance of an investment in Medallion Bank ?

Maybe regulators have suggested an individual like Mr Everets would give them more confidence in MFIN’s troubled business ?

Maybe Mr Everets is a friend or former colleague or golf partner.

Obviously we don’t know the backstory or the implications of this unexpected move.

All we can say with some confidence, but without any certainty as to the direction involved, that momentum is picking up at MFIN.

FULL DISCLOSURE : We are Long MFIN.

UPDATE

MFIN filed a Form 3 and a Form 4 which gives more information about the shares owned or benefiting the new Board member. Here is what we found:

Mr Everets reported owning 70,000 shares of MFIN directly, and 3,000 shares indirectly through his 50% owned stake in the investment firm he runs: Arcturus Capital.

MFIN has granted Mr Everets an option to acquire 11,333 shares over 3 three years at an exercise price of $2.61, as part of its 2015 Non Employee Director Plan.


 VIEWS

The BDC Reporter continues to be uncertain as to what exactly is happening here.

However, both investments by Mr Everets suggest the new Board member has some confidence in MFIN’s prospects.

From a BDC perspective, the amount of shares invested by a non-principal Board member is unusually high at such an early stage of a new relationship.

Maybe – and we’re just guessing – Mr Everets believes that the management of the BDC and his own contributions may be able to stem the tide at the MFIN, which has been on the verge of bankruptcy for months.

As we have said above, we are already Long MFIN, but the sudden involvement of Mr Everets and his ownership of a substantial amount of MFIN stock seems a positive sign.

We will be interested to see if the market reacts favorably or not at the open on Friday July 28. 

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