Sierra Income Corporation (“SIC”) recently extended a tender offer to its shareholders, which terminated on December 22, 2017, offering to purchase shares for $7.89 a share. SIC is a publicly registered, non-traded business-development company (“BDC”). This non-traded BDC invests primarily in first lien senior secured debt, second lien secured debt, and certain subordinated debt of middle market companies with annual revenue between $50 million and $1 billion. Investors who participated in the tender offer likely sustained losses on their initial capital investment at $10 per share (exclusive of fees, commissions and any distribution income received). According to publicly available information, a total of 4,923,026 shares were validly tendered.
According to publicly available information, SIC is externally managed by SIC Advisors LLC, which in turn, is affiliated with Medley Management (NYSE: MDLY, “Medley”). Medley operates a national direct origination franchise through which it seeks to market its financial products, including SIC. As of December 31, 2016, Sierra reported that it had raised in excess of $900 million in connection with its equity capital raise.
Investors who purchased shares in SIC’s offering acquired shares at $10 per share. Further, as outlined in SIC’s prospectus, investors who participated in the offering were subject to hefty up-front fees and commissions of nearly 10%, including a “selling commission” of 7.00%, in addition to a “dealer-manager fee” of 2.75%.
In January 2017, FINRA — as part of its ongoing efforts to ensure the integrity of financial markets and offer protection to investors — issued the following guidance with respect to certain illiquid non-traded financial products, including non-traded BDC’s:
While these products can be appropriate for some customers, certain non-traded REITs and unlisted BDCs, for example, may have high commissions and fees, be illiquid, have distributions that may include return of principal, have limited operating history, or present material credit risk arising from unrated or below investment grade products. Given these concerns, firms should make sure that they perform and supervise customer specific suitability determinations. More generally, firms should carefully evaluate their supervisory programs in light of the products they offer, the specific features of those products and the investors they serve.
Investors in non-traded BDCs and other illiquid investments such as non-traded REITs and private placement offerings may be able to recover their investment losses through FINRA arbitration, if the investment was recommended by a financial advisor who lacked a reasonable basis for the recommendation, or if the nature of the investment was misrepresented by the financial advisor. Investors may contact a securities arbitration attorney at Law Office of Christopher J. Gray, P.C. (866) 966-9598 or email@example.com for a no-cost, confidential consultation.