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Medley Capital: Terminates Revolver

BDCs:
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NEWS

On September 28, 2018 Medley Capital (MCC) announced the termination on the same day of its Revolving Credit Agreement with ING Capital, LLC.

The facility – as amended – had a limit of $150,000,000.

MCC in an 8-K filing indicated the termination was “undertaken in connection with the previously announced execution of and in anticipation of the transactions under the Agreement and Plan of Merger by and between the Company and Sierra Income Corporation”.

There were no material costs involved in the termination.

See the 8-K filing below.


ANALYSIS

Look Honey I Shrunk The Revolver

MCC has repeatedly reduced the limit on the Revolver from the original level of $345mn to $150mn, most recently in February of 2018.

At June 2018, the balance outstanding under the Revolver was minimal.

However MCC continued to borrow $246mn and $148mn (net of debt issuance costs) in unsecured notes and SBIC debentures.


VIEWS

Premature

Although MCC was not utilizing the Revolver as its portfolio has been shrinking, we are surprised by the decision to terminate the Revolver.

After all, shareholders have not yet voted on the proposed complex merger with Sierra Income and Medley Management (MDLY).

Radio Silence

In fact, no Proxy has even been issued, spelling out the details of the merger.

MCC has filed no document about the proposed transaction since August 13, 2018.

(Not) Looking Good

From the BDC Reporter’s standpoint, the optics of canceling a key loan agreement before the future of the BDC has been officially determined are not good.

In a way, MCC’s decision could be seen as an attempt to force the hands of shareholders to vote in favor of the merger with Sierra/MDLY by making impossible – or at least more difficult – the maintenance of the status quo, should that be the shareholders ultimate decision.

So far no other challenger/activist has appeared to make a so-called “superior offer” to MCC shareholders, but the possibility still exists.

Maybe the Board and Investment Advisor are seeking to ensure an untrammeled path to the merger with its sister companies.

Mediocre

As we’ve said in an earlier article when the outline of the tri-partite merger was first revealed,  the transaction does not appear- at first blush – anything to write home about.

Our initial review suggested that the principal beneficiaries of the deal will be the shareholders of MDLY, principally the insiders who control the 3 entities.

Logs On A Fire

This cancellation of the Revolver – although seemingly a minor development – adds to our suspicions that the proposed merger may not be in the best interests of the BDC’s shareholders.

Our impression is that MCC’s shareholders would be better off with a new Investment Advisor; capital structure and strategy.

However, that outcome seems increasingly unlikely to occur.

The cancellation of the Revolver is one more nail in the coffin.

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