Trust preferred securities occupy an unusual place in corporate finance. Often called TruPS, they are hybrid instruments that combine features of debt and preferred equity. A company generally issues them through a separate trust, and investors receive regular distributions that can resemble interest payments on bonds.
For the issuing company, TruPS can provide long term capital without issuing conventional bonds or additional common shares. For investors, they offer income and exposure to the financial strength of the company behind the securities. That exposure is important. If the issuer’s business weakens, the value of its TruPS can decline, even if the securities continue to pay distributions.
Companies sometimes buy back these securities before maturity. When they can repurchase them below their stated liquidation value, they reduce a future obligation and may record an accounting gain. That is the basic mechanics behind a new transaction involving Medallion Financial Corp. (NASDAQ: MFIN).
Medallion has announced an agreement to repurchase TruPS with a $15.0 million liquidation amount from BIMIZCI Fund LLC. The agreed purchase price is $11.049 million, plus accumulated distributions through the closing date. That equals 73.66% of face value.
The transaction means Medallion is retiring securities with a stated value of $15.0 million for about $11.0 million before accumulated distributions. The company expects to record a gain in the fourth quarter equal to the difference between the $15.0 million carrying value of the TruPS and the cost to acquire them. The final gain will depend on distributions accumulated through the closing date.
The repurchase covers nearly half of Medallion’s outstanding TruPS. Management described the deal as immediately accretive, meaning it is expected to benefit common shareholders once completed. Reducing these securities can also lower future distribution obligations and simplify the company’s capital structure.
The agreement includes more than the securities purchase. ZimCal Asset Management LLC is also a party to the purchase and settlement agreement. Together with BIMIZCI, the investor parties agreed to a five-year standstill that prevents proxy solicitations or other campaigns against Medallion. They also agreed to dispose of any remaining Medallion common shares by December 31st.
ZimCal founder Stephen Hodges said the firm invested in Medallion because it believed the business had potential. He described recent discussions with management as constructive and said the resolution serves the interests of all stockholders.
The TruPS repurchase fits into Medallion’s broader effort to return capital to common shareholders. Since 2022, the company says it has repurchased $40.6 million of common stock and paid $44.1 million in dividends.Â
About $23.6 million of that total has been returned during the current year. Share repurchases reduce the number of outstanding shares, while dividends send cash directly to shareholders. Medallion has used both methods as it manages its balance sheet and returns excess capital.
The TruPS transaction is separate from common share repurchases, but it supports the same broader objective. Medallion is using capital to reduce selected obligations while continuing to reward common shareholders.
Medallion’s past gives the announcement additional context. The company became widely known for lending against taxi medallions, the licenses required to operate taxis in certain cities. The rise of ride sharing services disrupted that market and created serious problems for lenders with heavy exposure to medallion values.
Medallion President and CEO Andrew Murstein said the company’s common stock recently traded at its highest level in about 12 years. He also said net taxi medallion related assets now represent just 0.1% of total assets.
Those figures point to a substantial change in the company’s business mix. Medallion now describes itself as a specialty finance company that originates and services consumer and commercial loans. Its recreation lending includes towable RVs and marine products. Its home improvement lending covers swimming pools, replacement roofs, and windows. The company also provides loan origination services to fintech strategic partners.
The transaction remains subject to customary closing conditions and is expected to close within 30 days. Once completed, investors will be able to see the final gain in Medallion’s fourth quarter results.
The agreement gives the company a discounted reduction in TruPS, a settlement with former activist investors, and another sign of its effort to move beyond its taxi medallion history. The main question going forward is whether Medallion can continue growing its consumer and commercial lending businesses while maintaining the capital returns that have become a central part of its story.
