Medley Management (MDLY) commenced voluntary case under chapter 11

March 8, 2021 6:21 AM EST

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Medley Management (NYSE: MDLY) disclosed:

Item 2.04. Triggering Events That Accelerate or Increase a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement.

The disclosure set forth in Item 8.01 under the heading titled “Effect of Chapter 11 Case on Debt Instruments” is incorporated into this Item 2.04 by reference.

Item 8.01. Other Events.

Voluntary Petition for Reorganization by Medley LLC Subsidiary

On March 7, 2021 (the “Petition Date”), Medley LLC (“Medley LLC”) commenced a voluntary case (the “Chapter 11 Case”) under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”). The Chapter 11 Case is captioned In re: Medley LLC, Case No. 21-10526.

The Medley investment platform is comprised of a number of investment advisers and other related entities. Medley LLC is the only entity on the platform that has filed for Chapter 11 protection. Medley Management Inc. (NYSE: MDLY) ("MDLY") and the other affiliated adviser entities on the Medley platform are not filing any bankruptcy petitions.

Medley LLC will continue to operate its business as “debtor-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and the orders of the Bankruptcy Court. To ensure its ability to continue operating in the ordinary course of business, Medley LLC has filed with the Bankruptcy Court motions seeking a variety of “first day” relief, including authority to continue utilizing and maintaining its existing cash management system.

Business operations across the Medley platform including providing investment and advisory services to its clients are continuing without interruption.

Proposed Plan of Reorganization

In connection with the Chapter 11 Case, Medley LLC filed with the Bankruptcy court a proposed Plan of Reorganization (the “Plan”) and a proposed Disclosure Statement related thereto (the “Disclosure Statement”). Medley LLC intends to seek the Bankruptcy Court’s approval of the Disclosure Statement and confirmation of the Plan. There can be no assurances that Medley LLC will obtain the Bankruptcy Court’s approval of the Disclosure Statement and/or confirmation of the Plan, or that if the Plan is approved, that the reorganization of Medley LLC will be successfully implemented as contemplated by the Plan. This Current Report on Form 8-K is not a solicitation of votes to accept or reject the Plan or an offer to sell or exchange securities of Medley LLC or MDLY. Any solicitation of votes or offer to sell or exchange or solicitation of an offer to buy or exchange any securities of Medley LLC or MDLY will be made only pursuant to and in accordance with the Disclosure Statement following approval by the Bankruptcy Court. Capitalized terms used in this Item 8.01 under this heading titled “Proposed Plan of Reorganization” but not otherwise defined herein shall have the respective meanings given to such terms in the Plan.

Below is a summary of the treatment that the following stakeholders of Medley LLC would receive under the Plan, which is subject to confirmation of the Bankruptcy Court:

Secured Claims. Each holder of an Allowed Secured Claim shall receive, at the option of the Debtor and in its sole discretion: (i) payment in full in Cash of its Allowed Secured Claim; (ii) the collateral securing its Allowed Secured Claim; (iii) Reinstatement of its Allowed Secured Claim; or (iv) such other treatment rendering its Allowed Secured Claim Unimpaired in accordance with section 1124 of the Bankruptcy Code.

Other Priority Claims. Each holder of an Allowed Other Priority Claim shall receive treatment in a manner consistent with section 1129(a)(9) of the Bankruptcy Code.

Notes Claims. On the Effective Date, each holder of an Allowed Notes Claim shall receive: (i) if such holder votes to accept the Plan, 0.600 shares of newly-issued Class A Common Stock of MDLY for each $25 principal amount of 7.25% senior notes due 2024 (“2024 Notes”) and/or 6.875% senior notes due 2026 (“2026 Notes”) held by such holder; (ii) if such holder does not take any action and does not vote on the Plan, 0.450 shares of newly-issued Class A Common Stock of MDLY for each $25 principal amount of 2024 Notes and/or 2026 Notes held by such holder; or (iii) if such holder elects to Opt-Out of the Third Party Release contained in Article VIII of the Plan and/or votes to reject the Plan, the lesser of (x) 0.134 shares of newly-issued Class A Common Stock of MDLY for each $25 principal amount of 2024 Notes and/or 2026 Notes held by such holder or (y) a pro rata share of the Rejecting Noteholder Pool.

Strategic Claim. The holder of the Allowed Strategic Claim shall receive: (i) 218,182 shares of newly-issued Class A Common Stock of MDLY; (ii) $350,000 in Cash on the Effective Date or as soon as practicable thereafter; and (iii) a secured promissory note, the form of which will be negotiated between the parties prior to the Confirmation Hearing, which provides for 10 consecutive quarterly payments of $225,000 in Cash, commencing on the last Business Day of the first full calendar quarter following the Effective Date.

General Unsecured Claims. Each holder of an Allowed General Unsecured Claim shall receive, at the option of the Debtor: (i) the lesser of the amount of its Allowed General Unsecured Claim in Cash, or its pro rata share of the General Unsecured Claims Pool; or (ii) Reinstatement.

Intercompany Claims. Each Allowed Intercompany Claim shall be, at the option of the Debtor, either: (i) Reinstated; or (ii) canceled, released, and extinguished and without any distribution at the Debtor’s election and in its sole discretion.

Interests. Each holder of an Interest shall retain such Interest.

Copies of the Plan and the Disclosure Statement are furnished as Exhibits 99.1 and 99.2 hereto, respectively, and are incorporated herein by reference. The above description of the Plan is a summary only and is qualified in its entirety by reference to the full text of the Plan.

Additional Information on the Chapter 11 Case

Bankruptcy Court filings and other information related to the Chapter 11 Case are available at a website administered by Medley LLC’s noticing and claims agent, Kurtzman Carson Consultants LLC, at https://www.kccllc.net/medley. The documents and other information available via the website or elsewhere are not part of this Current Report on Form 8-K and shall not be deemed incorporated herein.

Effect of Chapter 11 Case on Debt Instruments

The commencement of the Chapter 11 Case constitutes an event of default that accelerates the obligations under the following debt instruments (collectively, the “Debt Instruments”):

7.25% senior notes due 2024 (of which approximately $69 million in aggregate principal amount are outstanding), issued pursuant to that certain Indenture, dated as of August 9, 2016, as supplemented by that certain Third Supplemental Indenture, dated as of January 18, 2017, and that certain Fourth Supplemental Indenture, dated as of February 22, 2017, each between Medley LLC and U.S. Bank National Association, as Trustee, and each as amended, restated, supplemented, or otherwise modified from time to time; and

6.875% senior notes due 2026 (of which approximately $54 million in aggregate principal amount are outstanding), issued pursuant to that certain Indenture, dated as of August 9, 2016, as supplemented by that certain First Supplemental Indenture, dated as of August 9, 2016, and that certain Second Supplemental Indenture, dated as of October 18, 2016, each between Medley LLC and U.S. Bank National Association, as Trustee, and each as amended, restated, supplemented, or otherwise modified from time to time.

Any efforts to enforce payment obligations under the Debt Instruments are automatically stayed as a result of the filing of the Chapter 11 Case and the holders’ rights of enforcement with respect to the Debt Instruments are subject to the applicable provisions of the Bankruptcy Code.

Regulatory Matter

In connection with the commencement of the Chapter 11 Case, Medley LLC disclosed in its pleadings filed with the Bankruptcy Court certain matters related to MDLY’s and Medley LLC’s business, including the regulatory matter described below:

On September 17, 2019 the staff of the Securities and Exchange Commission’s Division of Enforcement (the “Staff”) informed MDLY that it was conducting an informal inquiry and requested the production and preservation of certain documents and records. MDLY fully cooperated with the Staff’s informal inquiry and began voluntarily providing the Staff with any requested documents.

By letter dated December 18, 2019, the Staff advised MDLY that a formal order of private investigation (the “Order”) had been issued and that the informal inquiry was now a formal investigation. The Order indicated that the investigation relates to Section 17(a) of the Securities Act of 1933, Section 10(b) of the Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 thereunder, and Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act of 1940, Rule 206(4)-8, Sections 13(a) and 14(a) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, 13a-13, and 14a-9 thereunder. MDLY continues to cooperate fully with the investigation.

MDLY cannot predict the outcome of, or the timeframe for, the conclusion of this investigation. An adverse outcome could have a material effect on MDLY’s and Medley LLC’s business, financial condition, or results of operations.



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