Item 8.01. Other Events.
On March 7, 2021 (the "Petition Date"), Medley LLC (the "Debtor") commenced a
voluntary case (the "Medley Bankruptcy Case") under chapter 11 of title 11 of
the United States Code in the United States Bankruptcy Court for the District of
Delaware (the "Bankruptcy Court"). The Debtor is the sole member of the
investment adviser, SIC Advisors LLC ("SIC Advisors"), and the administrator,
Medley Capital LLC ("Medley Capital") of Sierra Income Corporation ("Sierra").
Following the commencement of the Medley Bankruptcy Case, the Debtor continued
to manage its business as a debtor in possession under the Bankruptcy Code. The
Debtor, Medley Capital and the Official Committee of Unsecured Creditors
appointed in the Medley Bankruptcy Case reached agreement on the terms of a
chapter 11 plan, which was filed with the Bankruptcy Court on August 13, 2021,
and ultimately confirmed by the Bankruptcy Court on October 14, 2021 (as
supplemented and modified, the Modified Third Amended Combined Disclosure
Statement Chapter 11 Plan of Medley LLC, the "Plan"). The Plan became effective
on October 18, 2021 (the "Effective Date").
The Plan provides for a limited restructuring in chapter 11 to enable the Debtor
to maximize the value of its remaining contracts (the "Remaining Contracts")
over a short run-off period, until the Remaining Contracts are terminated,
subject to an end date of March 31, 2022 (the "Run-Off End Date"). The Remaining
Contracts consist of investment management agreements between the Debtor's
subsidiary advisers and third-party clients, including Sierra's investment
advisory agreement and related agreements with SIC Advisors and its
administration agreement and related agreements with Medley Capital. The Debtor
does not have its own employees, and in order to provide for the continued
performance of the Debtor's subsidiaries under the Remaining Contracts, the Plan
establishes a compensation plan for Medley Capital's employees (the "Non-Debtor
Compensation Plan"). The Non-Debtor Compensation Plan is designed to retain
certain key Medley Capital employees to service the Remaining Contracts,
including Sierra's investment advisory agreement with SIC Advisors and pursuant
to the Non-Debtor Compensation Plan, Sierra has agreed to contribute $2.1
million of a total cost of $5.7 million to fund the Non-Debtor Compensation
Plan. Sierra's obligations under the Non-Debtor Compensation Plan expire on
January 31, 2022, while Medley Capital's obligations under the Non-Debtor
Compensation Plan expire on the Run-Off End Date. The Plan also contemplates
that SIC Advisors will continue to honor its obligations under Sierra's
investment advisory agreement until the termination thereof. Accordingly,
Sierra's arrangements with SIC Advisors and Medley Capital are expected to
remain in place until the closing of the proposed mergers (the "Transaction")
contemplated by that certain Agreement and Plan of Merger (the "Merger
Agreement") dated as of September 21, 2021 by and among Sierra, Barings BDC,
Inc. ("BBDC"), Mercury Acquisition Sub, Inc., a Maryland corporation and a
direct wholly owned subsidiary of BBDC, Sierra and Barings LLC, a Delaware
limited liability company and investment adviser to BBDC.
The Plan further provides for a liquidating trust established for the benefit of
creditors holding allowed claims against the Debtor. On the Effective Date, the
Debtor's assets, including all cash on hand and all causes of action retained by
the estate under the Plan were transferred to the liquidating trust, and the
Plan provides for the subsequent transfer of the proceeds received by the Debtor
under the Remaining Contracts once the wind-down is complete.
In the event the Transaction is not consummated for any reason on or before the
Run-Off End Date, Sierra's Board of Directors would expect to consider
alternatives, including another merger transaction, Sierra's liquidation or the
replacement of SIC Advisors as its investment adviser, based on, among other
things, then-current market circumstances, the performance of the Sierra
portfolio and the financial position of Sierra. Sierra also might seek to reach
agreement with the liquidation trustee for the liquidation trust established
under the Plan, SIC Advisors and Medley Capital to extend the Run-Off End Date
so that SIC Advisors may continue to serve as Sierra's investment adviser beyond
March 31, 2022.
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