Company Description: Medley Capital Corporation (MCC) is a publicly-traded business development company (“BDC”) primarily engaged in providing debt capital to a wide range of U.S. based companies. MCC is externally managed by MCC Advisors, pursuant to a management agreement. MCC Advisors is controlled by Medley Management Inc., (MDLY) a publicly-traded asset management firm, which in turn is controlled by Medley Group LLC, an entity wholly-owned by the Taube brothers, Brook and Seth.
Investment Thesis: MCC is primarily a large portfolio of loans (roughly 12% of the portfolio is in equity securities derived from debt for equity swaps) owned at a 50% discount to the most recently reported net asset value, NAV. Roughly 70% of the loans are first-lien loans. MCC’s legacy 2nd lien loans have been a disaster for the company. However, even in our most draconian stress test, we arrive at a NAV materially higher than today’s share price. In no scenario do we conclude a NAV below $5.50/share versus today’s price of roughly $3.60/share.
Current Market Valuation:
Shares 54mm @ $3.55 = $192mm
Company reported NAV (March 31, 2018) $7.02
RAM Base Case NAV $6.17 (wipe out 50% of Class 4 & 5 assets)
RAM Bear Case NAV $5.33 (wipe out 100% of Class 4 & 5 assets)
Discount to Base Case 42%
Discount to Bear Case 32%
Dividend yield 11%
Key Considerations:
– Deep stress-testing still results in a material appreciation from the current market price of the security.
– MCC pays over a 10% dividend even after a recent dividend reduction.
– Class 1 and 2 assets (assets performing “better than expected”, and “as expected”, respectively), now account for 83% of the portfolio.
– MCC insiders made significant open-market purchases last year, at prices materially above today’s price, and now control roughly 15% of MCC common stock.
Insider Monkey’s Take: Medley Capital Corporation (NYSE:MCC) looks like another value trap. Seth and Brook Taube purchased shares last year at prices around $6.35. One would expect them to base these purchases on superior inside information about the value of their holdings. Well, the stock currently trades at $3.42. I don’t see any major hedge funds getting involved with Medley Capital Corporation. I also wouldn’t recommend a position in this stock at this moment.
Next in our list is Marchex Inc (NASDAQ:MCHX). This stock lost more than 73% over the last 4 years but more hedge funds are currently involved in this stock than the previous three. Here is Roumell’s investment thesis:
