Origami Capital Partners LLC, an asset management firm, has issued a public letter to the board and management of Medley Capital Corporation (NYSE: MCC) outlining its offer to acquire 100 percent of the company’s interests in subsidiary Medley SBIC L.P for $45 million. Medley SBIC is the small business investment company owned by Medley Capital Corporation, a publicly traded business development company.
In March 2013, Medley SBIC received approval for a license from the United States Small Business Administration (SBA), a government agency that provides support to entrepreneurs and small businesses, to operate as a small business investment company. The license allows Medley SBIC to obtain leverage by issuing SBA-guaranteed debentures, subject to the issuance of a capital commitment by the SBA and customary procedures. As of September 30, 2018, Medley SBIC had $135 million in SBA-guaranteed debentures outstanding.
Origami noted that the all-cash offer represents 60 percent of Medley SBIC’s regulatory capital at September 30, 2018, and implies a 36.2 percent premium to the company’s February 8, 2019, closing share price of $3.23.
“On April 4, 2018, we sent Medley Capital Corporation our original expression of interest in acquiring the Medley SBIC. Unfortunately, we received no response to our letter of nine months ago,” said Jeff Young, managing partner of Origami.
“In light of the overwhelming shareholder opposition against Medley’s proposed merger with Sierra and the Medley board’s rejection of the NexPoint proposal, Origami hereby formally and publicly announces our offer to acquire the Medley SBIC at a premium to the February 8 closing price for all cash…The Origami offer would deliver significantly more value to shareholders than either the Sierra merger or NexPoint’s proposal.”
As previously reported by The DI Wire, Sierra Income Corporation, a non-traded BDC, plans to acquire Medley Capital and Medley Management, with Sierra being the surviving company that would be structured as a publicly-traded BDC. Medley Capital and Sierra are both controlled by Medley Management.
NexPoint Advisors submitted a competing management proposal related to the merger, which Medley Capital and Sierra have declined to pursue. Independent proxy advisory firms Glass Lewis & Co. and Institutional Shareholder Services, as well as FrontFour Capital Group LLC, a significant Medley Capital shareholder, recently recommended that shareholders vote against the proposed merger in light of NexPoint’s competing proposal. Proxy advisory firm Egan-Jones Ratings recommended that shareholders vote for the merger.
In its non-binding proposal, Origami said that it “would work collaboratively with the Small Business Administration to ensure proper transfer of the SBIC license so that the fund would continue to operate and support the growth of its existing portfolio companies, but the proposed transaction would not be contingent on a successful transfer of the SBIC license.”
Medley Capital said that its board and special committee “are carefully reviewing the letter and will respond to Origami as appropriate.” The firm also claims that contrary to Origami’s public statements, it never received a proposal from Origami until February 12, 2019.
“Origami did not propose to buy the equity of the SBIC subsidiary for 60 percent of its fair market value or at any price last April as suggested by Origami’s press release,” Medley said in a filing with the SEC. “The SBIC subsidiary represents less than 11 percent of the company’s assets as of December 31, 2018, [and]…has very favorable financing from the Small Business Administration that is of significant benefit to the company and its stockholders.”
Origami Capital Partners launched in 2008 and has more than $450 million of assets under management, the company said. The firm focuses on “acquiring private assets trapped in complex structures” and provides solutions to owners who are seeking liquidity. Origami is a registered investment adviser and, since its inception in 2008, has invested more than $900 million.