Medley declares dividend above earnings

Executives on Medley Management’s earnings call were hopeful that future AUM growth around new products and existing dry powder will justify the 20 cent dividend, which was 6 cents above its core net income in Q2.

Expectations of future growth in fee-earning assets under management and the launch of new products led Medley Management's board of directors to approve a second quarter dividend of $0.20 per share despite core net income of just $0.14 per share and a GAAP loss per share of $0.03 during the three months ending 30 June.

According to comments made by co-chief executive officer Brook Taube on Medley's second quarter earnings call Thursday (11 August), positive feedback regarding the firm's newly-launched CLO equity fund and another upcoming fund under its Sierra brand leave the Board confident that growth will accelerate in the quarters to come.

“Our expectation is that over time we are going to be able to meet or exceed this dividend with core earnings,” Brook Taube said in response to a question from Mickey Schleien of Landenberg Thalman Financial Services. “At this point, based on reasonable visibility, the decision was to keep the dividend where it is and that's our plan at this point,” he said.

Co-chief executive Seth Taube (pictured) said that the firm's CLO Equity Opportunity Fund has been met by high interest among institutional investors. The fund provides an opportunity to invest into equity tranches of diversified CLO portfolios managed by firms with which Medley has working relationships. The firm held an early close of an unspecified amount on the fund after the end of the second quarter and expects it will reach a $100 million first close by the end of the year. The fund has an overall target of $500 million.  

In addition, Seth Taube said Medley had made progress on its Sierra Total Return Fund, which the firm expects to be declared effective in the fourth quarter of this year. The fund will offer investors the chance to invest in tradable credit instruments as well as limited participation in loans offered through Medley's direct origination platform. The product is designed to be in compliance with Department of Labor regulations extending the fiduciary standard from the management of corporate retirement plans to individual retirement accounts.

Executives on the call declined to provide more detail about a third new product they mentioned would be launched by the middle of next year.

Brook Taube did discuss the company's recent issuance of $25 million in senior unsecured notes with a ten-year maturity, which he said will be used to reduce the outstanding balance on the firm's outstanding term loan. He said the firm expected to utilise credit lines again in the future, as the firm continues to grow.

Medley reported a 25 percent year-over-year increase in AUM to $5 billion, $3.2 billion of which was fee-earning at the end of the quarter, according to Brook Taube.

According to materials released in conjunction with the call, Medley's portfolio consists of 72 percent first lien loans, 22 percent second lien loans, 2 percent mezzanine loans, 1 percent HoldCo notes and 3 percent equity positions. The firm's investments are spread throughout various industries, with the highest concentrations in the banking, business services, automotive and construction sectors.

The firm oversees the private Sierra BDC, the publicly-traded Medley Capital Corporation BDC and PE-style closed-end funds.