Medley/Sierra Tri-Merger to Create Second Largest Internally Managed BDC

Sierra Income Corporation, a non-traded business development company, plans to acquire publicly-traded BDC Medley Capital Corporation (NYSE: MCC) and alternative asset management firm Medley Management Inc. (NYSE: MDLY).

Sierra Income Corporation, a non-traded business development company, plans to acquire publicly-traded BDC Medley Capital Corporation (NYSE: MCC) and alternative asset management firm Medley Management Inc. (NYSE: MDLY).

Medley Capital Corporation will merge with and into Sierra, with Sierra as the surviving company. Simultaneously, Sierra will acquire Medley Management, and its existing asset management business will operate as a wholly-owned subsidiary of Sierra.

Sierra is expected to be the second largest internally managed BDC and the seventh largest publicly traded BDC with more than $5 billion of assets under management, including $2 billion of internally managed assets.

The companies noted that the transaction is expected to add scale to the BDC platform, increase operational efficiencies, create a stronger balance sheet and improve portfolio diversification. In addition, growth of Medley Management’s existing asset management business would add to net investment income and net asset value over time, the companies said.

The boards of the three companies have unanimously approved the proposed transactions, which is expected to close in the fourth quarter of 2018 or early in 2019, with shareholder approval.

The senior leadership and the investment management teams will remain intact as part of this transaction. The board of Sierra following the transaction will consist of the current independent directors from Sierra, one interested director from Sierra and two independent directors from Medley Capital Corporation.

Medley Capital Corporation shareholders will receive 0.8050 shares of Sierra common stock for each share of MCC common stock.

Medley Management Class A shareholders will receive 0.3836 shares of Sierra common stock for each Medley Class A share, $3.44 per share of cash consideration and $0.65 per share of special cash dividends.

Medley LLC unitholders have agreed to convert their units into MDLY Class A common stock and will receive 0.3836 shares of Sierra common stock for each MDLY Class A share, $3.44 per share of cash consideration and a $0.35 per share special cash dividend.

As part of the transaction, Medley LLC unitholders have agreed to forgo all payments that would be due to them under the existing tax receivable agreement with Medley for the benefit of the combined company.

At close, current Sierra shareholders will continue to own shares of Sierra common stock. As a condition to closing the transactions, Sierra’s common stock will be listed to trade on the New York Stock Exchange and Sierra will remain a BDC.

There are no expected changes to the current dividend policies of the respective entities prior to the closing of the transaction, except that Medley Capital Corporation will be terminating any feature of its dividend reinvestment plan.

In addition, Sierra will suspend any share repurchase program or offers to repurchase. It is anticipated that Sierra will continue with its current dividend policy after the close of the transaction.

The mergers are cross conditioned upon each other and are subject to approval by shareholders of the three companies, regulatory review, and other customary closing conditions.

Sierra, MCC and Medley will host a joint conference call at 9:00am (Eastern Time), August 10, 2018, to discuss the transactions. All interested parties can dial (877) 524-5743 and use the conference ID 5547448 approximately 10 minutes prior to the call. A joint slide presentation will be referenced on the conference call and is available on each of the entities’ websites.

Shares of MCC closed at $3.38 on Thursday, and MDLY shares closed at $3.50.

Sierra invests primarily in first lien senior secured debt, second lien secured debt and, to a lesser extent, subordinated debt of middle market companies in a broad range of industries with annual revenue between $50 million and $1 billion. The company’s offering launched in April 2012 and has raised $1 billion in total equity capital, as of the second quarter 2018. Sierra oversees a $1 billion investment portfolio.

Medley Capital Corporation is a closed-end, externally managed BDC that trades on the New York Stock Exchange (NYSE: MCC) and the Tel Aviv Stock Exchange (TASE: MCC). The company lends to privately-held middle market companies, primarily through directly originated transactions. As of June 30, 2018, the company’s portfolio had a fair market value of approximately $634.9 million.

Medley Management is an alternative asset management firm offering yield solutions to retail and institutional investors. Medley has more than $5 billion of assets under management in two business development companies, Medley Capital Corporation and Sierra Income Corporation, a credit interval fund, Sierra Total Return Fund (NASDAQ: SRNTX), and several private investment vehicles.

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