Phenixfin Corporation · NASDAQ:PFX
Phenixfin — Medley Capital — Merger or Acquisition (January 2019)
33 slides from Phenixfin's merger presentation, January 2019
Slide 1: Stronger Together
Stronger Together Medley Capital Corporation, Sierra Income Corporation and Medley Management Inc. Merger Overview January 2019
Slide 2: Important Notices
Important Notices This presentation contains “forward-looking” statements, including statements regarding the proposed transactions. Such forward-looking statements reflect current views with respect to future events and financial performance, and each of Sierra Income Corporation (“Sierra”), Medley
Slide 3: Important Notices
Important Notices Important Information and Where to Find It In connection with the proposed transactions, Sierra has filed with the SEC a Registration Statement on Form N-14 that includes a joint proxy statement (collectively, the “Joint Proxy Statement/Prospectus”) of Sierra, MCC, and MDLY. The Jo
Slide 4: Key Transaction Highlights
Key Transaction Highlights The combination of Sierra Income Corp. (“Sierra”), Medley Capital Corp. (“MCC”) and Medley Management Inc. (“MDLY”) will create a leading, publicly-traded internally managed BDC Creates the 2nd largest internally managed and 9th largest publicly traded Business Development
Slide 5: Benefits of Transaction for MCC Shareholders vs. Status Quo
Benefits of Transaction for MCC Shareholders vs. Status Quo MCC shareholders are better positioned within the Combined Company1 Expected Key Benefits of Completing Transaction Improved corporate governance through internalization of management 30% increase in distributions to MCC shareholders
Slide 6: Review of Independent Decision Framework
Review of Independent Decision Framework Independent Special Committees drove comprehensive and independent decision making processes at MCC, MDLY and Sierra Three Special Committees were formed and consisted solely of independent directors Three independent financial advisors provided their
Slide 7: Independent Special Committees and Advisors
Independent Special Committees and Advisors Three Special Committees, comprised solely of independent directors, received independent fairness opinions and counsel from their respective financial and legal advisors MCC Sierra MDLY • Arthur Ainsberg (Chair) • Oliver T. Kane (Chair) • Jeffrey Leeds (C
Slide 8: Key Corporate Governance Highlights
Key Corporate Governance Highlights The Combined Company will feature improved corporate governance and management aligned with shareholders Board composition consistent with industry best practices - greater independence (5 out of 6 directors will be independent) Single class of BDC common
Slide 9: 1. Medley Platform
1. Medley Platform 9
Slide 10: Medley Platform Overview
Medley Platform Overview Diversified alternative asset manager with approximately $4.8 billion of assets under management and synergies between business units (deal flow, ideas, relationships, experience) Direct Lending • Lending solutions for private, Corporate Credit middle market companies in the
Slide 11: 2015 Investment Strategy Shift Overview
2015 Investment Strategy Shift Overview Beginning in 2015, the Medley lending platform shifted its focus to first lien loans provided to larger, sponsor backed borrowers • Results have been strong - New origination post 2015 has experienced 0.02% of annualized realized losses1 - Two non-accruals out
Slide 12: 2015 Investment Strategy Shift – Impact on Portfolio
2015 Investment Strategy Shift – Impact on Portfolio Current combined portfolio composition at Medley demonstrates the shift to larger, sponsor-backed borrowers Investment Type1 CY 2014 LTM 9/30/18 5% 1% 4%7% 32% 63% 88% First Lien Second Lien Structured Products Equity/Warrants Sponsored vs. Non-Sp
Slide 13: 2015 Investment Strategy Shift – Portfolio Performance
2015 Investment Strategy Shift – Portfolio Performance Performance on loans originated since the beginning of 2015 has been strong MCC IRR1 Combined Company IRR1 11.6 % 10.4 % 6.1 % 5.4 % 2014 Vintage and Earlier 2015 Vintage and Later 2014 Vintage and Earlier 2015 Vintage and Later MCC Annualized L
Slide 14: Improved Senior Secured Asset Mix and Industry Diversification
Improved Senior Secured Asset Mix and Industry Diversification The Pro Forma Combined Company is more diversified with improved asset mix MCC Investment Type1 Combined Company Investment Type1 Number of Number of Borrowers: 114 4% Borrowers: 166 17% 10% 1% First Lien First Lien 11% 7% Second Lien Se
Slide 15: Improved Portfolio Credit Quality
Improved Portfolio Credit Quality Key credit and portfolio metrics of the Pro Forma Combined Company are better Regulatory Leverage1 Non-Accrual 4 & 5 Rated Credits 7.34 % 0.89 x 7.74 % 0.66 x 5.32 % 5.32 % MCC Combined Company MCC Combined Company MCC Combined Company Source: Management, Joint Prox
Slide 16: Rating Agency Credit Metrics Improvement
Rating Agency Credit Metrics Improvement (Current MCC Israeli S&P Credit Rating of iLA-) The Combined Company’s pro forma leverage, profitability and asset quality metrics, as calculated using S&P’s rating methodology, are expected to improve compared to MCC standalone1 MCC vs. Pro Forma Combined Co
Slide 17: 2. Transaction Summary
2. Transaction Summary 17
Slide 18: Transaction Summary
Transaction Summary • Combination of Sierra, MCC and MDLY through two transactions: Structure − Merger of MCC into Sierra; and − Acquisition of MDLY by Sierra; MDLY will operate as a subsidiary of Sierra MCC • Each MCC share will be converted into 0.8050 shares of Sierra Common Stock Consideration •
Slide 19: Simplified Corporate Structure
Simplified Corporate Structure Current Structure Pro Forma Sierra Structure MDLY Unitholders Combined (NYSE: MDLY) Company (NYSE: SRA) Advisory Contract Combined Sierra and MCC Portfolio Merger Sub Medley LLC Medley LLC Other MCC SIC Advisory Advisors Advisors Other Entities MCC Advisory Advisors Ad
Slide 20: MCC Share Performance Since Merger Announcement
MCC Share Performance Since Merger Announcement MCC relative stock price has outperformed peers following the deal announcement, but has fallen following the launch of a campaign by activist shareholders1 135% MCC is down 18% (peers down MCC traded up 12%+ following ...then traded approximately 130%
Slide 21: 3. Transaction Benefits
3. Transaction Benefits 21
Slide 22: Expected Accretion to Shareholders
Expected Accretion to Shareholders Substantial earnings and dividend accretion expected for MCC and Sierra shareholders Pro Forma Earnings Accretion1 15.7% 29.8%2 $ 0.58 $ 0.50 $ 0.47 $ 0.36 Standalone 2019E Sierra PF 2019E Sierra Standalone 2019E MCC PF 2019E MCC Source: Joint Proxy Statement/Prosp
Slide 23: Expected Increase in Distributions to Shareholders
Expected Increase in Distributions to Shareholders ~30%+ increase in distributions for MCC shareholders paid monthly vs. quarterly1 $ 0.66 $ 0.64 $ 0.02 $ 0.52 $ 0.12 $ 0.40 $ 0.64 $ 0.40 MCC Sep-2018 Annualized Pro Forma Sierra Distribution Sierra Sep-2018 Annualized Pro Forma Sierra Distribution D
Slide 24: Potential Valuation Uplift from Internally-Managed Structure
Potential Valuation Uplift from Internally-Managed Structure Internally-managed BDCs have historically traded at higher multiples than externally-managed BDCs, potentially indicating that the market may ascribe a valuation premium to the internally-managed structure1 Price / NAV Multiple Premium2 (%
Slide 25: Transaction Results in Increased Scale
Transaction Results in Increased Scale Transaction would create the 2nd largest internally managed and the 9th largest publicly traded BDC Assets ($ in millions) Externally Managed BDCs $12,255 Internally Managed BDCs Selected MCC Peers2 Anticipated Benefits From Scale • Greater ability to diversify
Slide 26: Improved Efficiency as Combined Company
Improved Efficiency as Combined Company Combined Company will have a more efficient, shareholder-friendly cost structure Non-Interest Expenses (% of Net Assets) 6.9 % 4.4 % MCC Standalone Pro Forma Sierra Source: Joint Proxy Statement/Prospectus, SNL Financial, Company Filings Note: Financial data a
Slide 27: Transactions Offer Opportunity for Enhanced Liquidity
Transactions Offer Opportunity for Enhanced Liquidity Larger BDCs have historically demonstrated better trading liquidity as seen through higher daily trading volumes1 ($ in millions) Selected MCC Peers2 $43 $7,000 $40 Transaction creates single $38 larger BDC with ~92% of shares in free float and $
Slide 28: Combined Company is Well-Positioned for a Rising Rate Environment
Combined Company is Well-Positioned for a Rising Rate Environment Pro Forma Combined Company NII increases by $6.7 million with every 100 bps increase in the base rate1 ($ in millions) Pro Forma NII Change Basis Point Change ($) (%)2 + 100 $6.7 9.9% + 200 13.4 19.8 + 300 20.1 29.7 + 400 26.8 39.6 +
Slide 29: Significant Governance Improvement
Significant Governance Improvement Multiple changes to corporate governance structure that enhance the influence of MCC shareholders Greater Board Independence – Five out of the six directors on the board of the Combined Company will be independent. Currently, only four out of seven of MCC’s direc
Slide 30: Key Transaction Highlights
Key Transaction Highlights The combination of Sierra, MCC and MDLY will create a leading, publicly-traded internally managed BDC Creates the 2nd largest internally managed and 9th largest publicly traded BDC1 1 • $2 billion of assets on balance sheet and ~$5 billion of AUM including third-party capi
Slide 31: Appendix: Medley Platform Senior Secured Returns and Vehicle Track Record
Appendix: Medley Platform Senior Secured Returns and Vehicle Track Record (based on performance data reflected in the public filings of MDLY)
Slide 32: Medley Platform Public and Private Vehicle Track Record
Medley Platform Public and Private Vehicle Track Record (based on performance data reflected in the public filings of MDLY) Inception Vehicle Number of Amount Realized Gross Strategy Geography Net IRR Date Type Investments Invested Loss Rate1 IRR ($ in millions) 1st Lien Senior Secured Focus: MCC Se
Slide 33: Medley Public and Private Vehicle Track Record Disclosures
Medley Public and Private Vehicle Track Record Disclosures (based on performance data reflected in the public filings of MDLY) 1. Annualized loss rate includes only those realized investments in which Medley experienced a loss of principal on a cumulative cash flow basis. Annualized loss rate is cal
Medley Capital — Merger or Acquisition (January 2019) on 6ix