Medley BDC braves headwinds

Medley’s BDC struggled against headwinds in the first quarter, maintaining its $0.30 dividend despite reporting NOI of just $0.26 per share.  


Focusing on efforts to reduce leverage and support its existing portfolio through stock repurchases, the Medley Capital Corporation (MCC) reported earnings for a difficult first quarter of 2016 on Monday (9 May). MCC reported net investment income of $14.6 million, down from the $15.7 million in the fourth quarter of 2015, while maintaining its $0.30 per share dividend. The company's total assets fell from $1.16 billion reported in the fourth quarter of 2015 to $1.06 billion at the end of March.


In a statement, the company said that it had $25.3 million left under its $343.5 million senior secured credit facility. MCC chief executive officer and chairman Brook Taube said on the earnings call that during the first quarter, net repayments of $69 million had brought leverage to 0.68x, down from the 0.78x leverage level the company reported at the end of the previous quarter.


“Our headwinds today are actually a declining portfolio size and our stated intention to reduce leverage,” said MCC chief financial officer Richard Allorto on the call.


Taube said that MCC had repurchased 1.4 million shares during the first quarter, at an average price of $6.71 per share. These purchases now total about $32 million of the $50 million repurchase plan MCC has in place through the end of 2016. Last year, Medley agreed to cut management and incentive fees in an attempt to support stock prices, which had been trading below book value for some time.  At the end of the first quarter, the BDC continued to trade at a discount, with a 0.67x price to book ratio.


“We're committed to completing our share repurchase programme and again hard at work on our specific non-accruals and look forward to having positive information to report in the quarters ahead,” Taube said.


MCC's 65 portfolio companies are spread across 20 industries, with its four energy investments constituting about 5 percent of the portfolio. Taube said that non-accruals made up 6.2 percent of the overall portfolio and that MCC placed one loan, Capstone Nutrition's first lien term facility, on non-accrual status during the first quarter.


Taube reported that the change in Captstone's status was related to the company losing a customer that left it with a working capital shortfall.  MCC worked with a group of lenders to gain majority control over Capstone, which provides branded dietary supplements and is adding new customers, according to Taube.


Looking ahead, executives said there had been some improvements in energy prices and that recent better conditions in the market provided some hope that future quarters would produce better results for the New York-based BDC.


“New deal flow is characterised by higher quality credit, better structure in terms, although yields have not risen dramatically, which people might have expected given the volatility. So, stable yield, better structure, better credit,” said Taube, “In that context, we're comfortable on the origination side of the market today.”