Medley Capital: Name Change
Value, non-investment grade debt
Seeking Alpha Analyst Since 2007
Nicholas Marshi is the Editor of the BDC Reporter (www.bdcreporter.com), the leading online publication dedicated to the Business Development Company ("BDC") sector. The BDC Reporter is read by thousands of individual and institutional investors for its broad and incisive coverage of this $60bn segment of the financial sector. Since 2008, Mr Marshi has also been a frequent contributor to Seeking Alpha, penning hundreds of articles and blog posts. Mr Marshi is also the Chief Investment Officer of BDC Investment Advisors (BDCIA), a Registered Investment Adviser based in Los Angeles, California. BCIA manages investment portfolios, both for its own account and those of third parties, solely in the publicly traded securities of BDCs. Since 2009 SCM has also managed a "friends and family" investment fund focused on the BDC sector, which has recently opened up to third party accredited investors. Prior to forming BCIA, Mr. Marshi managed two private equity firms. Both firms were active in acquiring lower middle market private companies, principally in Southern California. Before getting into Private Equity, Mr Marshi was the head of the Los Angeles office of Kleinwort Benson Limited, a British merchant bank, from 1987-1990. Mr Marshi was involved in investment banking, lending and principal investing activities. At the outset of his career, Mr Marshi held various positions with Citibank at locations worldwide including Athens, Dubai, Puerto Rico and London. Mr Marshi is a graduate of Tufts University (B.A.) and Harvard University (M.A.).
- Medley Capital (MCC) is changing how the BDC is managed and named.
- We discuss the details and offer up some strong opinions about what’s happening here.
On December 21, 2020 Medley Capital (MCC) announced its intention to transfer the trading of its common stock and remaining Baby Bond from the NYSE to the NASDAQ.
Furthermore, the BDC announced a name change – effective January 1, 2021 – to PhenixFIN Corporation.
“The Company expects the Common Stock and the Notes to begin trading on the NASDAQ under the ticker symbols “PFX” and “PFXNL”, respectively, on January 4, 2021. Until that time, the Common Stock and the Notes will continue to trade on the NYSE”.
The full press release is attached.
Parting Of The Ways
As previously discussed on these pages, the BDC has recently decided to become internally managed and has ended – effective year end – its management contract with Medley Management. (MDLY).
The Board of MCC/PFX appointed David Lorber, “who has served as an independent director of the Company since April 2019, as interim Chief Executive Officer and Ellida McMillan as Chief Financial Officer of the Company, each effective January 1, 2021”.
Here is what was disclosed on November 24, 2020 about the overall team that will be responsible for the BDC from the new year:
“Mr. Lorber and Ms. McMillan are in the process of assembling the internalized management team, that will be responsible for the day-to-day management and operations of the Company, under the oversight of the Board. The Company has thus far engaged a senior investment professional with significant credit experience to serve as the lead portfolio strategist, who will work closely with Mr. Lorber. The Company has also retained US Bancorp Fund Services, LLC to serve as the Company’s fund accountant and administrator, and is in the process retaining Alaric Compliance Services, LLC, an officer of which would serve as the Company’s Chief Compliance Officer. The new, simplified and streamlined structure is expected to lead to reduced operating costs/expenses for the Company in 2021, although there can be no assurance of the anticipated savings”.
In The Name Of
Given that the BDC will no longer have any relationship with the Medley organization, the change of name is important for both organizations to avoid any confusion.
Most BDC external managers choose to stamp a variation of their name on the BDCs under their control, but that now has to be reversed.
No explanation was given for the new name given.
All BDC external management contracts include provisions for changes of this kind.
Typically, the BDC manager transfers the management rights to another asset manager, resulting in another name change.
For example, relatively recently Tennenbaum Capital Partners was sold, which resulted in its BDC TCP Capital Corp becoming BlackRock TCP Capital.
In that case the ticker symbol remained TCPC but in other instances – as with First Eagle Investment Management ‘s taking over at THL Credit Inc. which resulted in that BDC calling itself “First Eagle Alternative Capital BDC Inc“.
Also updated was the BDC’s common stock ticker symbol with Nasdaq to FCRD from TCRD, and the tickers of the two Baby Bonds outstanding, now FCRW and FCRZ.
Looking back we cannot remember an instance where a BDC switched from external to internal management.
Overnight PFX will no longer have access to the professionals who booked the original investments nor those responsible for ongoing monitoring.
We expect new office space has been found and some sort of back-office operation has been arranged.
Has To Be Said
The BDC Reporter does not like to sound preachy.
In most situations we seek to describe the pros and cons of any situation as dispassionately as possible.
However, this is our Views section and we feel impelled to say that the communications involved in this shift from external to internal management has been very poorly handled.
As mentioned above, changes of this kind are very rare and will involve substantive changes in personnel, process and procedure.
Moreover, this follows a two year period when the BDC’s shareholders have been buffeted back and forth as the managers and Board sought and failed multiple times to arrive at a permanent solution to the BDC’s problems.
During this period, the dividend has been suspended; a valuable SBIC license abandoned; net book value eviscerated and the stock price has dropped by two-thirds.
Millions of dollars have been spent – with little to show – on outside professionals, lawyers and accountants.
Then, even when a decision was finally made to switch from external to internal management, the Board and the insiders have been completely close mouthed about the reasoning; the implications and the intended result.
It’s as if the BDC has been hijacked and the shareholders are voiceless victims whose fate is entirely out of their hands.
The BDC did not hold a conference call when IIIQ 2020 results were published on December 11, 2020 (way after all other BDCs); nor has any presentation been scheduled to discuss the new status, strategy and team.
Huge salaries and bonuses have been set for the principals, but without any sense of oversight or conditionality:
“Mr. Lorber’s base annual salary will be $425,000, with a discretionary annual bonus of up to 100% of the base annual salary. Ms. McMillan’s base annual salary will be $300,000, with a discretionary annual bonus of up to $200,000”.
This is no way for a BDC’s shareholders, debt holders and other stakeholders to be treated.
However, there is no sign as yet that an internally managed MCC/PFX is going to be any more transparent or shareholder friendly than in the very dark last several years under Medley’s tutelage.
All Quiet On The BDC Front
In some other industries a disgrace such as this might be headline news but in the BDC sector – where corporate governance has often been iffy – the SEC, stock exchanges, analysts and shareholders seem strangely passive.
Maybe everyone convinces themselves that this is a single “bad apple” situation and that the market cap of the BDC is now so small (under $100mn) as to make this behavior immaterial.
We worry that future bad actors – perhaps with far greater assets under management – will read what’s happened here as a playbook for their own actions.
Analyst's Disclosure: I am/we are long MCC.
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