On March 7, 2021, Medley Capital Corp. (NYSE: MCC), a direct subsidiary of Medley Management Inc. (NYSE: MDLY), filed for Bankruptcy Protection from creditors – mostly investors. Medley Management Inc., is an “alternative asset management firm offering yield solutions to retail and institutional investors” through two Business Development Companies (“BDCs”), Medley Capital and Sierra Income Corp., a non-traded BDC.
Medley Capital Corp and Sierra Income Corp, invested in non-public companies, under the direction and advice of Medley Management’s affiliate SIC Advisors, LLC. The two BDCs made loans to non-public companies that did not have access to the traditional publicly traded bond markets to finance business operations. As such, the BDC loan portfolios were inherently more risky than traditional bond investments. At one time, Medley Capital’s national direct origination franchise as a provider of capital to the “middle market” companies in the U.S. reached $3.6 billion of assets through the management of the two business development companies, Medley Capital Corp. and Sierra Income Corp.
The COVID Pandemic created a disproportionate financial burden on the private companies that had limited access to capital. The loans made to these private companies did not qualify for Federal Reserve liquidity programs which supported traditional bond markets during the Pandemic. In May 2020, the planned merger agreement between Sierra Income Corp. and Medley Capital Corp. (NYSE:MCC) had been terminated citing “the changed circumstances and the unpredictable economic conditions resulting from the global health crisis caused by the coronavirus (COVID-19) pandemic.”
In the beginning of March 2021, Medley Capital filed for bankruptcy with reported Total Assets of $5,422,369 and Total Debts of $140,752,116. This is a staggering loss of capital when compared to the outstanding obligations of the Medley Capital and its affiliated companies, exclusive of Sierra Income Corp’s operating results. Sierra Income Corp. is a non-traded BDC which was subject to its own unique set of operating and financial costs, including high selling commissions, management fees and a high level of leverage which resulted in an increased portfolio breakeven rate of return. During the same period, Sierra Income Corp’s portfolio loan losses were evidenced by the precipitous drop in the Fund’s Net Asset Value, as quoted in secondary markets for the highly illiquid loan portfolio.
Lawrence L. Klayman explains, “Sierra Income Corp. is a non-traded Business Development Company with a significantly higher level of fees, expenses, and commissions than traditional fixed-income investments, which increases the breakeven point for investment returns.” Mr. Klayman continues, “These factors are not easily understood by investors who lack the sophistication to determine the nature of the risks associated with the strategy.” Recommended investments in Medley Capital Corp. and Sierra Income Corp are unsuitable investments for investors with income investment objectives and a conservative or moderate risk tolerance. Financial advisors who fail to adequately disclose all relevant costs and risks associated with BDC investment may be in violation of securities rules and regulations, including misrepresentations and breach of duty to their clients amongst other potential claims.
The sole purpose of this release is to investigate investment advice provided by full-service brokerage firms related to BDCs, including Medley Capital Corp. and Sierra Income Corp. BDC investors with accounts at full-service brokerage firms, and have information relating to the handling of their investment portfolios are encouraged to contact Lawrence L. Klayman, Esq., at (561) 542-5131, and download our Special Investor Report.
KlaymanToskes is a leading national securities law firm which practices exclusively in the field of securities arbitration and litigation, on behalf of retail and institutional investors throughout the world in large and complex securities matters. The firm represents high net‐worth, ultra‐high‐net‐worth, and institutional investors, such as non‐profit organizations, unions, public and multi‐employer pension funds. K&T has office locations in California, Florida, New York and Puerto Rico.