10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549 

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

or 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 For the transition period fromto

 Commission File Number: 001-36638

Medley LLC

(Exact name of registrant as specified in its charter)

Delaware	27-2437343
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

280 Park Avenue, 6th Floor East

New York, New York 10017

(Address of principal executive offices)(Zip Code)

(212) 759-0777

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12 (b) of the Act:

(Title of each class)	Trading Symbol	(Name of each exchange on which registered)
6.875% Notes due 2026	MDLX	New York Stock Exchange
7.25% Notes due 2024	MDLQ	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes   ☒     No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes   ☒     No   ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐ 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

As of November 10, 2020, 3,063,441 units of Membership interests in Medley LLC were outstanding. There is no trading market for Medley LLC's unit of membership interest.

TABLE OF CONTENTS 

		Page
Part I.	FINANCIAL INFORMATION
Item 1.	Financial Statements	F- 1
	Condensed Consolidated Balance Sheets as of September 30, 2020 (unaudited) and December 31, 2019	F- 1
	Condensed Consolidated Statements of Operations (unaudited) for the Three and Nine Months Ended September 30, 2020 and 2019	F- 2
	Condensed Consolidated Statements of Changes in Members' Deficit (unaudited) for the Three and Nine Months Ended September 30, 2020 and 2019	F- 3
	Condensed Consolidated Statements of Cash Flows (unaudited) for the Nine Months Ended September 30, 2020 and 2019	F- 5
	Notes to the Condensed Consolidated Financial Statements (unaudited)	F- 6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
Item 4.	Controls and Procedures	27
Part II.	OTHER INFORMATION
Item 1.	Legal Proceedings	28
Item 1A.	Risk Factors	29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29
Item 3.	Defaults Upon Senior Securities	29
Item 4.	Mine Safety Disclosures	29
Item 5.	Other Information	29
Item 6.	Exhibits, Financial Statement Schedules	30
	Signatures	32

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (“Form 10-Q”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that reflect our current views with respect to, among other things, our operations and financial performance. Forward-looking statements include all statements that are not historical facts. In some cases, you can identify these forward-looking statements by the use of words such as “outlook,” “believes,” “expects,” “potential,” “may,” “should,” “could,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of these words or other comparable words. Such forward-looking statements are subject to various risks and uncertainties. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. We believe these factors include, but are not limited to, those described under Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019, available on the SEC’s website at www.sec.gov, which include, but are not limited to, the following:

• difficult market and political conditions may adversely affect our business in many ways, including by reducing the value or hampering the performance of the investments made by our funds, each of which could materially and adversely affect our business, results of operations and financial condition;

• our business may be adversely affected by the ongoing COVID-19 pandemic;

• we derive a substantial portion of our revenues from funds managed pursuant to advisory agreements that may be terminated or fund partnership agreements that permit fund investors to remove us as the general partner;

• we may not be able to maintain our current fee structure as a result of industry pressure from fund investors to reduce fees, which could have an adverse effect on our profit margins and results of operations;

• a change of control of us could result in termination of our investment advisory agreements;

• the historical returns attributable to our funds should not be considered as indicative of the future results of our funds;

• if we are unable to consummate or successfully integrate development opportunities, acquisitions or joint ventures, we may not be able to implement our growth strategy successfully;

• we depend on third-party distribution sources to market our investment strategies;

• an investment strategy focused primarily on privately held companies presents certain challenges, including the lack of available information about these companies;

• our funds’ investments in investee companies may be risky, and our funds could lose all or part of their investments;

• prepayments of debt investments by our investee companies could adversely impact our results of operations;

• our funds’ investee companies may incur debt that ranks equally with, or senior to, our funds’ investments in such companies;

• subordinated liens on collateral securing loans that our funds make to their investee companies may be subject to control by senior creditors with first priority liens and, if there is a default, the value of the collateral may not be sufficient to repay in full both the first priority creditors and our funds;

• there may be circumstances where our funds’ debt investments could be subordinated to claims of other creditors or our funds could be subject to lender liability claims;

• our funds may not have the resources or ability to make additional investments in our investee companies;

• economic recessions or downturns could impair our investee companies and harm our operating results;

• a covenant breach by our investee companies may harm our operating results;

• the investment management business is competitive;

• our funds operate in a competitive market for lending that has recently intensified, and competition may limit our funds’ ability to originate or acquire desirable loans and investments and could also affect the yields of these assets and have a material adverse effect on our business, results of operations and financial condition;

• dependence on leverage by certain of our funds and by our funds’ investee companies subjects us to volatility and contractions in the debt financing markets and could adversely affect our ability to achieve attractive rates of return on those investments;

i

• some of our funds may invest in companies that are highly leveraged, which may increase the risk of loss associated with those investments;

• we generally do not control the business operations of our investee companies and, due to the illiquid nature of our investments, may not be able to dispose of such investments;

• a substantial portion of our investments may be recorded at fair value as determined in good faith by or under the direction of our respective funds’ boards of directors or similar bodies and, as a result, there may be uncertainty regarding the value of our funds’ investments;

• we may need to pay “clawback” obligations if and when they are triggered under the governing agreements with respect to certain of our funds and SMAs;

• our funds may face risks relating to undiversified investments;

• third-party investors in our private funds may not satisfy their contractual obligation to fund capital calls when requested, which could adversely affect a fund’s operations and performance;

• our funds may be forced to dispose of investments at a disadvantageous time;

• hedging strategies may adversely affect the returns on our funds’ investments;

• our business depends in large part on our ability to raise capital from investors. If we were unable to raise such capital, we would be unable to collect management fees or deploy such capital into investments, which would materially and adversely affect our business, results of operations and financial condition;

• we depend on our senior management team, senior investment professionals and other key personnel, and our ability to retain them and attract additional qualified personnel is critical to our success and our growth prospects;

• our failure to appropriately address conflicts of interest could damage our reputation and adversely affect our business;

• rapid growth of our business may be difficult to sustain and may place significant demands on our administrative, operational and financial resources;

• we may enter into new lines of business and expand into new investment strategies, geographic markets and business, each of which may result in additional risks and uncertainties in our business;

• extensive regulation affects our activities, increases the cost of doing business and creates the potential for significant liabilities and penalties that could adversely affect our business and results of operations;

• failure to comply with “pay to play” regulations implemented by the SEC and certain states, and changes to the “pay to play” regulatory regimes, could adversely affect our business;

• new or changed laws or regulations governing our funds’ operations and changes in the interpretation thereof could adversely affect our business;

• present and future business development companies for which we serve as investment adviser are subject to regulatory complexities that limit the way in which they do business and may subject them to a higher level of regulatory scrutiny;

• we are subject to risks in using custodians, counterparties, administrators and other agents;

• a portion of our revenue and cash flow is variable, which may impact our ability to achieve steady earnings growth on a quarterly basis;

• we may be subject to litigation risks and may face liabilities and damage to our professional reputation as a result;

• employee misconduct could harm us by impairing our ability to attract and retain investors and subjecting us to significant legal liability, regulatory scrutiny and reputational harm, and fraud and other deceptive practices or other misconduct at our investee companies could similarly subject us to liability and reputational damage and also harm our business;

• our substantial indebtedness could adversely affect our financial condition, our ability to pay our debts or raise additional capital to fund our operations, our ability to operate our business and our ability to react to changes in the economy or our industry and could divert our cash flow from operations for debt payments;

• servicing our indebtedness will require a significant amount of cash. Our ability to generate sufficient cash depends on many factors, some of which are not within our control;

ii

• despite our current level of indebtedness, we may be able to incur substantially more debt and enter into other transactions, which could further exacerbate the risks to our financial condition;

• operational risks may disrupt our business, result in losses or limit our growth;

• our ability to realize anticipated cost savings and efficiencies from consolidating our business activities to our New York office;

• the impact of the termination of the Amended MDLY Merger Agreement and the Amended MCC Merger Agreement on our business and financial results; and

• risks and uncertainties relating to the possibility that MCC may explore strategic alternatives, including, but are not limited to: the timing, benefits and outcome of any exploration of strategic alternatives by MCC; potential disruptions in MCC’s business as a result of its exploration of any strategic alternatives; and the risk that any exploration of strategic alternatives may have an adverse effect on MCC’s existing business arrangements or relationships, including its relationship with the Company and its ability to retain or hire key personnel. There is no assurance that any exploration of strategic alternatives will result in a transaction or other strategic change or outcome.

These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this Form 10-Q, the risk factors and other cautionary statements in our Annual Report on Form 10-K for the year ended December 31, 2019 and other reports we file with the Securities and Exchange Commission. Forward-looking statements speak as of the date on which they are made, and we undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law.

Medley LLC was formed on October 27, 2010 and is the operating company of Medley Management Inc., a public company traded under the symbol "MDLY." Medley Management Inc. is the sole managing member of Medley LLC. Medley Management Inc. was incorporated on June 13, 2014 and commenced operations on September 29, 2014 upon completion of its initial public offering (“IPO”) of its Class A common stock. Medley Management Inc.'s sole operating asset is its investment in Medley LLC. Medley Management Inc. is controlled by the pre-IPO owners of Medley LLC.

Unless the context suggests otherwise, references herein to the “Company,” “Medley”, “we,” “us” and “our” refer to Medley LLC, and its consolidated subsidiaries.

The “pre-IPO owners” refers to the senior professionals who were the owners of Medley LLC immediately prior to the Offering Transactions. The “Offering Transactions” refer to Medley Management Inc.’s purchase upon the consummation of its IPO of 6,000,000 newly issued limited liability company units (the “LLC Units”) from Medley LLC, which correspondingly diluted the ownership interests of the pre-IPO owners in Medley LLC and resulted in Medley Management Inc.’s holding a number of LLC Units in Medley LLC equal to the number of shares of Class A common stock it issued in its IPO.

Unless the context suggests otherwise, references herein to:

• “Aspect” refers to Aspect-Medley Investment Platform A LP;

• “Aspect B” refers to Aspect-Medley Investment Platform B LP;

• “AUM” refers to the assets of our funds, which represents the sum of the NAV of such funds, the drawn and undrawn debt (at the fund level, including amounts subject to restrictions) and uncalled committed capital (including commitments to funds that have yet to commence their investment periods);

• “base management fees” refers to fees we earn for advisory services provided to our funds, which are generally based on a defined percentage of fee earning AUM or, in certain cases, a percentage of originated assets in the case of certain of our SMAs;

• “BDC” refers to business development company;

• “Consolidated Funds” refers to, with respect to periods after December 31, 2013 and before January 1, 2015, MOF II, with respect to periods prior to January 1, 2014, MOF I LP, MOF II and MOF III, subsequent to its formation; and, with respect to periods after May 31, 2017 and prior to April 6, 2020, Sierra Total Return Fund;

• “fee earning AUM” refers to the assets under management on which we directly earn base management fees;

• “hurdle rates” refers to the rates above which we earn performance fees, as defined in the long-dated private funds’ and SMAs’ applicable investment management or partnership agreements;

iii

• “investee company” refers to a company to which one of our funds lends money or in which one of our funds otherwise makes an investment;

• “long-dated private funds” refers to MOF II, MOF III, MOF III Offshore, MCOF, Aspect, Aspect B and any other private funds we may manage in the future;

• “management fees” refers to base management fees, other management fees and Part I incentive fees;

• “MCOF” refers to Medley Credit Opportunity Fund LP;

• “MDLY” refers to Medley Management Inc.;

• “Medley LLC” refers to Medley LLC and its consolidated subsidiaries;

• “MOF II” refers to Medley Opportunity Fund II LP;

• “MOF III” refers to Medley Opportunity Fund III LP;

• "MOF III Offshore" refers to Medley Opportunity Fund Offshore III LP;

• “our funds” refers to the funds, alternative asset companies and other entities and accounts that are managed or co-managed by us and our affiliates;

• “our investors” refers to the investors in our permanent capital vehicles, our private funds and our SMAs;

• “Part I incentive fees” refers to fees that we receive from our permanent capital vehicles, and since 2017, MCOF and Aspect, which are paid in cash quarterly and are driven primarily by net interest income on senior secured loans subject to hurdle rates. As it relates to Medley Capital Corporation (NYSE: MCC) (TASE:MCC) (“MCC”), these fees are subject to netting against realized and unrealized losses;

• “Part II incentive fees” refers to fees related to realized capital gains in our permanent capital vehicles;

• “performance fees” refers to incentive allocations in our long-dated private funds and incentive fees from our SMAs, which are typically 15% to 20% of the total return after a hurdle rate, accrued quarterly, but paid after the return of all invested capital and in an amount sufficient to achieve the hurdle rate;

• “permanent capital” refers to capital of funds that do not have redemption provisions or a requirement to return capital to investors upon exiting the investments made with such capital, except as required by applicable law, which funds currently consist of MCC, Sierra Total Return Fund ("STRF") and Sierra Income Corporation (“SIC” or "Sierra"). Such funds may be required, or elect, to return all or a portion of capital gains and investment income. In certain circumstances, the investment adviser of such a fund may be removed;

• “SMA” refers to a separately managed account; and

• "standalone" refers to our financial results without the consolidation of any fund(s).

iv

PART I.

Item 1. Financial Statements (Unaudited)

Medley LLC

Condensed Consolidated Balance Sheets

(Unaudited)

(Dollars in thousands)

	As of
	September 30, 2020			December 31, 2019
Assets
Cash and cash equivalents	$	5,823		$	10,377
Investments, at fair value	9,637			13,287
Management fees receivable	5,799			8,104
Right-of-use assets under operating leases	5,206			6,564
Other assets	10,073			9,727
Total Assets	$	36,538		$	48,059
Liabilities, Redeemable Non-controlling Interests and Members' Deficit
Liabilities
Senior unsecured debt, net	$	118,958		$	118,382
Loans payable	10,000			10,000
Due to former minority interest holder, net	7,233			8,145
Operating lease liabilities	7,420			8,267
Accounts payable, accrued expenses and other liabilities	25,942			21,886
Total Liabilities	169,553			166,680
Commitments and Contingencies (Note 12)
Redeemable Non-controlling Interests	—			(748		)
Members' Deficit
Members' Capital	(132,538		)	(117,482		)
Non-controlling interests in consolidated subsidiaries	(477		)	(391		)
Total deficit	(133,015		)	(117,873		)
Total Liabilities, Redeemable Non-controlling Interests and Members' Deficit	$	36,538		$	48,059

See accompanying notes to unaudited condensed consolidated financial statements

F- 1

Medley LLC

Condensed Consolidated Statements of Operations

(Unaudited)

(Dollars in thousands)

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2020			2019			2020			2019
Revenues
Management fees (there were no Part I incentive fees during the periods presented)	$	6,275		$	9,607		$	19,807		$	30,728
Other revenues and fees	1,635			2,621			6,269			7,731
Investment income (loss):
Carried interest	(3		)	(142		)	83			651
Other investment income (loss), net	419			(550		)	(1,384		)	(922		)
Total Revenues	8,326			11,536			24,775			38,188
Expenses
Compensation and benefits	4,040			7,090			17,119			22,069
General, administrative and other expenses	3,599			5,403			11,682			12,763
Total Expenses	7,639			12,493			28,801			34,832
Other Income (Expenses)
Dividend income	—			182			137			942
Interest expense	(2,535		)	(2,874		)	(7,950		)	(8,646		)
Other (expenses) income, net	(167		)	1,768			(5,592		)	(641		)
Total expenses, net	(2,702		)	(924		)	(13,405		)	(8,345		)
Loss before income taxes	(2,015		)	(1,881		)	(17,431		)	(4,989		)
Benefit from income taxes	(51		)	(28		)	(392		)	(71		)
Net Loss	(1,964		)	(1,853		)	(17,039		)	(4,918		)
Net income attributable to redeemable non-controlling interests and non-controlling interests in consolidated subsidiaries	1			1,619			60			140
Net Loss Attributable to Medley LLC	$	(1,965	)	$	(3,472	)	$	(17,099	)	$	(5,058	)

See accompanying notes to unaudited condensed consolidated financial statements

F- 2

Medley LLC

Condensed Consolidated Statements of Changes in Members' Deficit

(Unaudited)

(Dollars in thousands)

For the Three Months Ended September 30, 2020:

	Accumulated Deficit			Non- controlling Interests in Consolidated Subsidiaries			Total Deficit
Balance at June 30, 2020	$	(131,758	)	$	(364	)	$	(132,122	)
Net (loss) income	(1,965		)	1			(1,964		)
Contributions	1,185			—			1,185
Distributions	—			(114		)	(114		)
Balance at September 30, 2020	$	(132,538	)	$	(477	)	$	(133,015	)

For the Nine Months Ended September 30, 2020:

	Accumulated Deficit			Non- controlling Interests in Consolidated Subsidiaries			Total Deficit
Balance at December 31, 2019	$	(117,482	)	$	(391	)	$	(117,873	)
Net (loss) income	(17,099		)	64			(17,035		)
Contributions	2,821			—			2,821
Distributions	(401		)	(150		)	(551		)
Fair value adjustment to redeemable non-controlling interests (Note 16)	(752		)	—			(752		)
Reclassification of cumulative dividends on forfeited restricted stock units to compensation and benefits expense	375			—			375
Balance at September 30, 2020	$	(132,538	)	$	(477	)	$	(133,015	)

See accompanying notes to unaudited condensed consolidated financial statements

F- 3

Medley LLC

Condensed Consolidated Statements of Changes in Members' Deficit

(Unaudited)

(Dollars in thousands)

For the Three Months Ended September 30, 2019:

	Accumulated Deficit			Non- controlling Interests in Consolidated Subsidiaries			Total Deficit
Balance at June 30, 2019	$	(109,016	)	$	(416	)	$	(109,432	)
Net loss	(3,472		)	(93		)	(3,565		)
Contributions	1,495			—			1,495
Reclass of cumulative dividends on forfeited restricted stock units to compensation and benefits expense	37			—			37
Balance at September 30, 2019	$	(110,956	)	$	(509	)	$	(111,465	)

For the Nine Months Ended September 30, 2019:

	Accumulated Deficit			Non- controlling Interests in Consolidated Subsidiaries			Total Deficit
Balance at December 31, 2018	$	(109,981	)	$	(747	)	$	(110,728	)
Net (loss) income	(5,058		)	461			(4,597		)
Contributions	4,716			—			4,716
Reclass of cumulative dividends on forfeited restricted stock units to compensation and benefits expense	336			—			336
Distributions	(969		)	(223		)	(1,192		)
Balance at September 30, 2019	$	(110,956	)	$	(509	)	$	(111,465	)

See accompanying notes to unaudited condensed consolidated financial statements

F- 4

Medley LLC

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(Dollars in thousands)

	Nine Months Ended September 30,
	2020			2019
Cash flows from operating activities
Net loss	$	(17,039	)	$	(4,918	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Stock-based compensation	2,946			5,227
Amortization of debt issuance costs	519			580
Accretion of debt discount	720			994
Benefit from deferred taxes	—			(36		)
Depreciation and amortization	539			528
Net unrealized depreciation on investments	1,288			1,368
Losses (income) from equity method investments	330			(257		)
Reclassification of cumulative dividends paid on forfeited restricted stock units to compensation and benefits expense	375			336
Non-cash lease costs	1,823			1,823
Other non-cash amounts	330			—
Changes in operating assets and liabilities:
Management fees receivable	2,305			1,748
Income distributions received from equity method investments	772			648
Purchase of investments	—			(706		)
Sale of investments	95			822
Other assets	(872		)	(234		)
Operating lease liabilities	(1,313		)	(2,042		)
Accounts payable, accrued expenses and other liabilities	5,339			(4,457		)
Net cash (used in) provided by operating activities	(1,843		)	1,424
Cash flows from investing activities
Purchases of fixed assets	(16		)	(37		)
Distributions received from investment held at cost less impairment	27			222
Decrease in cash resulting from the deconsolidation of STRF	(471		)	—
Capital contributions to equity method investments	—			(3		)
Net cash (used in) provided by investing activities	(460		)	182
Cash flows from financing activities
Payments to former minority interest holder	(1,575		)	(3,500		)
Distributions to members, non-controlling interests and redeemable non-controlling interests	(551		)	(3,554		)
Payments of tax withholdings related to net share settlement of restricted stock units	(125		)	(511		)
Net cash used in financing activities	(2,251		)	(7,565		)
Net decrease in cash and cash equivalents	(4,554		)	(5,959		)
Cash and cash equivalents, beginning of period	10,377			16,970
Cash and cash equivalents, end of period	$	5,823		$	11,011
Supplemental disclosure of non-cash operating and financing activities:
Recognition of right-of-use assets under operating leases upon adoption of new leasing standard	$	—		$	8,233
Recognition of operating lease liabilities arising from obtaining right-of-use assets under operating leases upon adoption of new leasing standard	—			10,229
Accretion of operating lease liabilities recorded against right-of-use assets	—			586
Fair value adjustment to redeemable non-controlling interest in STRF Advisors LLC (Note 17)	752			—

See accompanying notes to unaudited condensed consolidated financial statements

F- 5

Medley LLC

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. ORGANIZATION AND BASIS OF PRESENTATION

Medley LLC is an alternative asset management firm offering yield solutions to retail and institutional investors. The Company's national direct origination franchise provides capital to the middle market in the United States of America. Medley LLC, provides investment management services to permanent capital vehicles, long-dated private funds and separately managed accounts and serves as the general partner to the private funds, which are generally organized as pass-through entities. Medley LLC and its consolidated subsidiaries (collectively “Medley” or the “Company”) is headquartered in New York City.

Medley's business is currently comprised of only one reportable segment, the investment management segment, and substantially all of the Company operations are conducted through this segment. The investment management segment provides investment management services to permanent capital vehicles, long-dated private funds and separately managed accounts. The Company conducts its investment management business in the U.S., where substantially all its revenues are generated.

Registered Public Offering of Medley Notes

On August 9, 2016, Medley LLC completed a registered public offering of $25.0 million of an aggregate principal amount of 6.875% senior notes due 2026 (the "2026 Notes") at a public offering price of 100% of the principal amount. On October 18, 2016, Medley LLC completed a public offering of an additional $28.6 million in aggregate principal amount of the 2026 Notes at a public offering price of $24.45 for each $25.00 principal amount of notes. The notes mature on August 15, 2026 and interest is payable quarterly. The notes will be redeemable in whole or in part at Medley's option on or after August 15, 2019 at a redemption price of 100% of the aggregate principal amount plus accrued and unpaid interest payments. The Company used the net proceeds from the offering to repay a portion of the outstanding indebtedness under its term loan facility with Credit Suisse, which was terminated in February 2017. The 2026 Notes are listed on the New York Stock Exchange and trades thereon under the trading symbol “MDLX.”

On January 18, 2017, Medley LLC completed a registered public offering of $34.5 million of an aggregate principal amount of 7.25% senior notes due 2024 (the “2024 Notes”) at a public offering price of 100% of the principal amount. On February 22, 2017, Medley LLC completed a public offering of an additional $34.5 million in aggregate principal amount of the 2024 Notes at a public offering price of $25.25 for each $25.00 principal amount of notes. The 2024 Notes mature on January 30, 2024 and interest is payable quarterly commencing on April 30, 2017. The notes will be redeemable in whole or in part at Medley's option on or after January 30, 2020 at a redemption price of 100% of the aggregate principal amount plus accrued and unpaid interest payment. The Company used the net proceeds from the offering to repay the remaining outstanding its term loan facility with Credit Suisse, which was terminated in February 2017, and for general corporate purposes. The 2024 Notes are listed on the New York Stock Exchange and trade thereon under the trading symbol “MDLQ.”

Medley LLC Reorganization

In connection with the IPO of Medley Management Inc.“MDLY”, Medley LLC amended and restated its limited liability agreement to modify its capital structure by reclassifying the 2,333,333 interests, as adjusted for the reverse split mentioned below, held by the pre-IPO members into a single new class of units (“LLC Units”). The pre-IPO members also entered into an exchange agreement under which they (or certain permitted transferees thereof) have the right, subject to the terms of an exchange agreement, to exchange their LLC Units for shares of Medley Management Inc.’s Class A common stock on a one-for-one basis, subject to customary conversion rate adjustments for stock splits, stock dividends and reclassifications. In addition, pursuant to the amended and restated limited liability agreement, Medley Management Inc. became the sole managing member of Medley LLC.

Reverse Split of LLC Units

On October 30, 2020, MDLY effected a reverse stock split at a ratio of 1-for-10 of all classes of its common stock. As a result of the reverse stock split, each ten shares of MDLY's outstanding common stock were combined into one share of the respective class of common stock without any change to the par value per share. In accordance with the organization agreement entered into by MDLY and Medley LLC in connection with the IPO of MDLY, the Company's LLC Units were also adjusted at a ratio of 1-for-10 simultaneously with the reverse stock split of MDLY common stock.

As a result of this reverse stock split, all references in these consolidated financial statements and notes thereto to MDLY common share amounts and the Company's LLC Units reflect the effect of the reverse stock split.

Termination of Agreement and Plan of Merger

On July 29, 2019, MDLY entered into the Amended and Restated Agreement and Plan of Merger, dated as of July 29, 2019 (the “Amended MDLY Merger Agreement”), by and among MDLY, Sierra Income Corporation (“Sierra”), and Sierra Management,

F- 6

Medley LLC

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Inc., a wholly owned subsidiary of Sierra (“Merger Sub”), pursuant to which MDLY would have, on the terms and subject to the conditions set forth in the Amended MDLY Merger Agreement, merged with and into Merger Sub, with Merger Sub as the surviving company in the merger (the “MDLY Merger”). In addition, on July 29, 2019, Medley Capital Corporation (“MCC”) and Sierra entered into the Amended and Restated Agreement and Plan of Merger, dated as of July 29, 2019 (the “Amended MCC Merger Agreement”), by and between MCC and Sierra, pursuant to which MCC would have, on the terms and subject to the conditions set forth in the Amended MCC Merger Agreement, merged with and into Sierra, with Sierra as the surviving company in the merger (the “MCC Merger”).

On May 1, 2020, MDLY received a written notice of termination from Sierra in accordance with Sections 9.1 and 10.2 of the Amended MDLY Merger Agreement. Section 9.1(c) of the Amended MDLY Merger Agreement permits both MDLY and Sierra to terminate the Amended MDLY Merger Agreement if the MDLY Merger had not been consummated on or before March 31, 2020 (the “Outside Date”).

As a result, the Amended MDLY Merger Agreement had been terminated effective as of May 1, 2020. Sierra terminated the Amended MDLY Merger Agreement effective as of May 1, 2020 as the Outside Date had passed and the MDLY Merger had not been consummated. Representatives of Sierra informed MDLY that in determining to terminate the Amended MDLY Merger Agreement, Sierra considered a number of factors, including, among other factors, changes in the relative valuation of MDLY and Sierra, the changed circumstances and the unpredictable economic conditions resulting from the global health crisis caused by the coronavirus (COVID-19) pandemic, and the uncertainty regarding the parties’ ability to satisfy the conditions to closing the MDLY Merger in a timely manner.

In addition, on May 1, 2020, MCC received a notice of termination from Sierra of the Amended MCC Merger Agreement. Under the Amended MCC Merger Agreement, either party may have, subject to certain conditions, terminated the Amended MCC Merger Agreement if the MCC Merger was not consummated by March 31, 2020. Sierra elected to do so on May 1, 2020. Representatives of Sierra informed MCC that in determining to terminate the Amended MCC Merger Agreement, Sierra considered a number of factors, including, among other factors, changes in the relative valuation of MCC and Sierra, the changed circumstances and the unpredictable economic conditions resulting from the global health crisis caused by the COVID-19 pandemic, and the uncertainty regarding the parties’ ability to satisfy the conditions to closing the MCC Merger in a timely manner.

Transaction expenses related to the MDLY Merger are included in general, administrative and other expenses and consist primarily of professional fees. Such expenses amounted to $1.0 million and $2.1 million for the three months ended September 30, 2020 and 2019, respectively, and $3.5 million for each of the nine months ended September 30, 2020 and 2019.

Basis of Presentation

The accompanying consolidated financial statements have been prepared on the accrual basis of accounting in conformity with U.S. generally accepted accounting principles (“GAAP”) and includes the accounts of Medley LLC and its consolidated subsidiaries. Intercompany balances and transactions have been eliminated in consolidation.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

In accordance with Accounting Standards Codification (“ASC”) 810, Consolidation, the Company consolidates those entities where it has a direct and indirect controlling financial interest based on either a variable interest model or voting interest model. As such, the Company consolidates entities that the Company concludes are variable interest entities (“VIEs”), for which the Company is deemed to be the primary beneficiary and entities in which it holds a majority voting interest or has majority ownership and control over the operational, financial and investing decisions of that entity.

For legal entities evaluated for consolidation, the Company must determine whether the interests that it holds and fees paid to it qualify as a variable interest in an entity. This includes an evaluation of the management fee and performance fee paid to the Company when acting as a decision maker or service provider to the entity being evaluated. If fees received by the Company are customary and commensurate with the level of services provided, and the Company does not hold other economic interests in the entity that would absorb more than an insignificant amount of the expected losses or returns of the entity, the interest that the Company holds would not be considered a variable interest. The Company factors in all economic interests including proportionate interests through related parties, to determine if fees are considered a variable interest.

An entity in which the Company holds a variable interest is a VIE if any one of the following conditions exist: (a) the total equity investment at risk is not sufficient to permit the legal entity to finance its activities without additional subordinated financial support, (b) the holders of the equity investment at risk have the right to direct the activities of the entity that most significantly

F- 7

Medley LLC

Notes to Condensed Consolidated Financial Statements

(Unaudited)

impact the legal entity’s economic performance, or (c) the voting rights of some investors are disproportionate to their obligation to absorb losses or rights to receive returns from a legal entity. For limited partnerships and other similar entities, non-controlling investors must have substantive rights to either dissolve the fund or remove the general partner (“kick-out rights”) in order to not qualify as a VIE.

For those entities that qualify as a VIE, the primary beneficiary is generally defined as the party who has a controlling financial interest in the VIE. The Company is generally deemed to have a controlling financial interest if it has the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, and the obligation to absorb losses or receive benefits from the VIE that could potentially be significant to the VIE. The Company determines whether it is the primary beneficiary of a VIE at the time it becomes initially involved with the VIE and reconsiders that conclusion continuously. The primary beneficiary evaluation is generally performed qualitatively on the basis of all facts and circumstances. However, quantitative information may also be considered in the analysis, as appropriate. These assessments require judgment. Each entity is assessed for consolidation on a case-by-case basis. 

For those entities evaluated under the voting interest model, the Company consolidates the entity if it has a controlling financial interest. The Company has a controlling financial interest in a voting interest entity (“VOE”) if it owns a majority voting interest in the entity.

Consolidated Variable Interest Entities

As of September 30, 2020, Medley LLC had four subsidiaries, Medley Caddo Investors Holdings 1 LLC, Medley Avantor Investors LLC, Medley Cloverleaf Investors LLC and Medley Real D Investors LLC, which are consolidated VIEs. Each of these entities was organized as a limited liability company and was legally formed to either manage a designated fund or to strategically invest capital as well as isolate business risk. As of September 30, 2020, total assets and total liabilities, after eliminating entries, of these VIEs reflected in the consolidated balance sheets were $0.9 million and less than $0.1 million, respectively. As of December 31, 2019, Medley LLC had seven subsidiaries, Medley Seed Funding I LLC, Medley Seed Funding II LLC, STRF Advisors LLC, Medley Caddo Investors Holdings 1 LLC, Medley Avantor Investors LLC, Medley Cloverleaf Investors LLC and Medley Real D Investors LLC. As of December 31, 2019, total assets and total liabilities, after eliminating entries, of these VIEs reflected in the consolidated balance sheets were $1.2 million and less than $0.1 million, respectively. Except to the extent of the assets of these VIEs that are consolidated, the holders of the consolidated VIEs’ liabilities generally do not have recourse to the Company.

Seed Investments and Deconsolidation of Consolidated Fund

The Company accounts for seed investments through the application of the voting interest model under ASC 810-10-25-1 through 25-14 and consolidates a seed investment when the investment advisor holds a controlling interest, which is, in general, 50% or more of the equity in such investment. For seed investments in which the Company does not hold a controlling interest, the Company accounts for such seed investment under the equity method of accounting, at its ownership percentage of such seed investment’s net asset value.

The Company seed funded $2.1 million to Sierra Total Return Fund ("STRF"), which commenced investment operations in June 2017. Since inception through April 6, 2020, the date of deconsolidation of STRF, the Company owned 100% of the equity of STRF and, as such, consolidated STRF in its consolidated financial statements.

F- 8

Medley LLC

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The condensed balance sheet of STRF as of December 31, 2019 is presented in the table below.

	As of
	December 31, 2019
Assets	(in thousands)
Cash and cash equivalents	$	682
Investments, at fair value	1,441
Other assets	29
Total assets	$	2,152
Liabilities and Equity
Accounts payable, accrued expenses and other liabilities	$	342
Equity	1,810
Total liabilities and equity	$	2,152

As of December 31, 2019, the Company's condensed consolidated balance sheet reflects the elimination of $0.2 million of other assets and $1.8 million of equity as a result of the consolidation of STRF. During the nine months ended September 30, 2020 and 2019 this fund did not generate any significant income or losses from operations.

In connection with the exercise of DB Med Investors put option right in October 2019, as further discussed in Notes 11 and 16 to these condensed consolidated financial statements, STRF filed an application with the Securities and Exchange Commission ("SEC") on December 26, 2019, and an amendment on February 24, 2020, requesting an order under section 8(f) of the Investment Company Act of 1940 (the "Act") declaring that it has ceased to be an investment company. On March 25, 2020, the SEC ordered, under the Act, that STRF's application registration under the Act shall forthwith cease to be in effect. All shares of STRF held by the Company were transferred to DB Med Investors as well as $0.1 million of remaining cash held by Medley Seed Funding II LLC on April 6, 2020, in full satisfaction of the liability due to DB Med Investors (Note 11). As a result of the transfer of STRF shares to DB Med Investors, the Company no longer consolidates STRF in its consolidated financial statements for periods subsequent to April 6, 2020.

The condensed balance sheet of STRF, as of April 6, 2020, is presented in the table below.

	As of
	April 6, 2020
Assets	(in thousands)
Cash and cash equivalents	$	471
Investments, at fair value	1,016
Other assets	76
Total assets	$	1,563
Liabilities and Equity
Accounts payable, accrued expenses and other liabilities	$	39
Equity	1,524
Total liabilities and equity	$	1,563

Non-Consolidated Variable Interest Entities

The Company holds interests in certain VIEs that are not consolidated because the Company is not deemed to be the primary beneficiary. The Company's interest in these entities is in the form of insignificant equity interests and fee arrangements. The maximum exposure to loss represents the potential loss of assets by the Company relating to these non-consolidated entities.

As of September 30, 2020, the Company recorded investments, at fair value, attributed to these non-consolidated VIEs of $2.4 million, receivables of $0.6 million included as a component of other assets and a clawback obligation of $7.2 million included as a component of accounts payable, accrued expenses and other liabilities on the Company’s consolidated balance sheets. As of December 31, 2019, the Company recorded investments, at fair value, attributed to non-consolidated VIEs of $3.0 million, receivables of $1.3 million included as a component of other assets and a clawback obligation of $7.2 million included as a component of accounts payable, accrued expenses and other liabilities on the Company’s consolidated balance sheets. As of September 30, 2020, the Company’s maximum exposure to losses from these entities is $3.0 million.

F- 9

Medley LLC

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Concentration of Credit and Market Risk

In the normal course of business, the Company's underlying funds encounter significant credit and market risk. Credit risk is the risk of default on investments in debt securities, loans and derivatives that result from a borrower's or derivative counterparty's inability or unwillingness to make required or expected payments. Credit risk is increased in situations where the Company's underlying funds are investing in distressed assets or unsecured or subordinate loans or in securities that are a material part of its respective business. Market risk reflects changes in the value of investments due to changes in interest rates, credit spreads or other market factors. The Company's underlying funds may make investments outside of the United States. These non-U.S. investments are subject to the same risks associated with U.S. investments, as well as additional risks, such as fluctuations in foreign currency exchange rates, unexpected changes in regulatory requirements, heightened risk of political and economic instability, difficulties in managing the investments, potentially adverse tax consequences, and the burden of complying with a wide variety of foreign laws.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Management’s estimates are based on historical experience and other factors, including expectations of future events that management believes to be reasonable under the circumstances. These assumptions and estimates also require management to exercise judgment in the process of applying the Company’s accounting policies. Significant estimates and assumptions by management affect the carrying value of investments, deferred tax assets, performance compensation payable and certain accrued liabilities. Actual results could differ from these estimates, and such differences could be material.  

Indemnification

In the normal course of business, the Company enters into contractual agreements that provide general indemnifications against losses, costs, claims and liabilities arising from the performance of individual obligations under such agreements. The Company has not experienced any prior claims or payments pursuant to such agreements. The Company’s individual maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Company that have not yet occurred. However, based on management’s experience, the Company expects the risk of loss to be remote.

Non-Controlling Interests in Consolidated Subsidiaries

Non-controlling interests in consolidated subsidiaries represent the component of equity in such consolidated entities held by third-parties and certain employees. These interests are adjusted for contributions to and distributions from Medley entities and are allocated income or loss from Medley entities based on their ownership percentages. 

Redeemable Non-Controlling Interests

Redeemable non-controlling interests represents interests of certain third parties that are not mandatorily redeemable but redeemable for cash or other assets at a fixed or determinable price or a fixed or determinable date, at the option of the holder or upon the occurrence of an event that is not solely within the control of the Company. These interests are classified in the mezzanine section on the Company's consolidated balance sheets.

Cash and Cash Equivalents

Cash and cash equivalents include liquid investments in money market funds and demand deposits. The Company had cash balances with financial institutions in excess of Federal Deposit Insurance Corporation insured limits as of September 30, 2020 and December 31, 2019. The Company monitors the credit standing of these financial institutions and has not experienced, and has no expectations of experiencing, any losses with respect to such balances.

Investments

Investments include equity method investments that are not consolidated but over which the Company exerts significant influence. The Company measures the carrying value of its privately-held equity method investments by recording its share of the earnings or losses of its investee in the periods for which they are reported by the investee in the investee's financial statements rather than in the period in which an investee declares a dividend or distribution. For the Company's public non-traded equity method investment, it measures the carrying value of such investment at Net Asset Value ("NAV") per share. Unrealized appreciation (depreciation) resulting from changes in fair value of the equity method investments is reflected as a component of investment income in the consolidated statements of operations along with the income and expense allocations from such investments.

The carrying amounts of equity method investments are reflected in Investments, at fair value on the Company's consolidated balance sheets. As the underlying entities that the Company manages and invests in are, for U.S. GAAP purposes, primarily

F- 10

Medley LLC

Notes to Condensed Consolidated Financial Statements

(Unaudited)

investment companies which reflect their investments at estimated fair value, the carrying value of the Company’s equity method investments in such entities approximates fair value. The Company evaluates its equity-method investments for impairment whenever events or changes in circumstances indicate that the carrying amounts of such investments may not be recoverable.

For presentation in its consolidated statements of cash flows, the Company treats distributions received from certain equity method investments using the cumulative earnings approach. Under the cumulative earnings approach, an investor would compare the distributions received to its cumulative equity-method earnings since inception. Any distributions received up to the amount of cumulative equity earnings would be considered a return on investment and classified in operating activities. Any excess distributions would be considered a return of investment and classified in investing activities.

Investments also include publicly traded common stock. The Company measures the fair value of its publicly traded common stock at the quoted market price on the primary market or exchange on which the underlying shares trade. Any realized gains (losses) from the sale of investments and unrealized appreciation (depreciation) resulting from changes in fair value are recorded in other income (expense), net.

Investments of Consolidated Fund

In accordance with ASC 820, Fair Value Measurements and Disclosures, the Company's consolidated fund at December 31, 2019 has categorized its investments carried at fair value, based on the priority of the valuation technique, into a three-level fair value hierarchy as discussed in Note 5. Fair value is a market-based measure considered from the perspective of the market participant who holds the financial instrument rather than an entity specific measure. Investments for which market quotations are readily available are valued at such market quotations, which are generally obtained from an independent pricing service or multiple broker-dealers or market makers. The consolidated fund weighs the use of third-party broker quotations, if any, in determining fair value based on management's understanding of the level of actual transactions used by the broker to develop the quote and whether the quote was an indicative price or binding offer. However, debt investments with remaining maturities within 60 days that are not credit impaired are valued at cost plus unamortized discount, or minus amortized premium, which approximates fair value. Investments for which market quotations are not readily available are valued at fair value as determined by the consolidated fund’s board of trustees based upon input from management and third party valuation firms. Because these investments are illiquid and because there may not be any directly comparable companies whose financial instruments have observable market values, these loans are valued using a fundamental valuation methodology, consistent with traditional asset pricing standards, that is objective and consistently applied across all loans and through time. As a result of the transfer of STRF shares to DB Med Investors on April 6, 2020, the Company no longer consolidates STRF in its consolidated financial statements.

Revenues

The Company recognizes revenue in accordance with ASC 606, Revenues from Contracts with Customers. The Company recognizes revenue under the core principle of depicting the transfer of promised goods or services to customers in an amount that reflects the consideration to which it expects to be entitled in exchange for such goods or services. To achieve this, the Company applies a five step approach: (1) identify the contract(s) with a customer, (2) identify the performance obligations within the contract, (3) determine the transaction price, (4) allocate the transaction price to the separate performance obligations and (5) recognize revenue when, or as, each performance obligation is satisfied.

Carried interest are performance-based fees that represent a capital allocation of income to the general partner or investment manager. Such fees are accounted for under ASC 323, Investments - Equity Method and Joint Ventures and, therefore, are not in the scope of ASC 606.

Management Fees

Medley provides investment management services to both public and private investment vehicles. Management fees include base management fees, other management fees, and Part I incentive fees, as described below.

Base management fees are calculated based on either (i) the average or ending gross assets balance for the relevant period, (ii) limited partners’ capital commitments to the funds, (iii) invested capital, (iv) NAV or (v) lower of cost or market value of a fund’s portfolio investments. Depending upon the contracted terms of the investment management agreement, management fees are paid either quarterly in advance or quarterly in arrears, and are recognized as earned over the period the services are provided. 

Certain management agreements provide for Medley to receive other management fee revenue derived from up front origination fees paid by the funds' and/or separately managed accounts' underlying portfolio companies. These fees are recognized when the Company becomes entitled to such fees.

Certain management agreements also provide for Medley to receive Part I incentive fee revenue derived from net investment income (excluding gains and losses) above a hurdle rate. As it relates to MCC, these fees are subject to netting against realized and unrealized losses. Part I incentive fees are paid quarterly and are recognized as earned in the period the services are provided.

F- 11

Medley LLC

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Performance Fees

Performance fees are contractual fees which do not represent a capital allocation of income to the general partner or investment manager that are earned based on the performance of certain funds, typically, the Company’s separately managed accounts. Performance fees are earned based on each fund's performance during the period, subject to the achievement of minimum return levels in accordance with the respective terms set out in each fund’s investment management agreement.

Other Revenues and Fees

Medley provides administrative services to certain affiliated funds and is reimbursed for direct and allocated expenses incurred in providing such administrative services, as set forth in the respective underlying agreements. These fees are recognized as revenue in the period administrative services are rendered. Medley also acts as the administrative agent on certain deals for which Medley may earn loan administration fees and transaction fees. Medley may also earn consulting fees for providing non-advisory services related to its managed funds. These fees are recognized as revenue over the period the services are performed.

Investment Income (loss) - Carried Interest

Carried interest are performance-based fees that represent a capital allocation of income to the general partner or investment manager. Carried interest are allocated to the Company based on cumulative fund performance to date, subject to the achievement of minimum return levels in accordance with the respective terms set out in each fund’s governing documents and are accounted for under the equity method of accounting. Accordingly, these performance fees are reflected as carried interest within investment income on the Company's consolidated statements of operations and balances due for such fees are included as a part of equity method investments within Investments, at fair value on the Company's consolidated balance sheets.

The Company records carried interest based upon an assumed liquidation of that fund's net assets as of the reporting date, regardless of whether such amounts have been realized. For any given period, carried interest on the Company's consolidated statements of operations may include reversals of previously recognized carried interest due to a decrease in the value of a particular fund that results in a decrease of cumulative fees earned to date. Since fund return hurdles are cumulative, previously recognized carried interest also may be reversed in a period of appreciation that is lower than the particular fund's hurdle rate.

Carried interest received in prior periods may be required to be returned by the Company in future periods if the funds’ investment performance declines below certain levels. Each fund is considered separately in this regard and, for a given fund, carried interest can never be negative over the life of a fund. If upon a hypothetical liquidation of a fund’s investments, at their then current fair values, previously recognized and distributed carried interest would be required to be returned, a liability is established for the potential clawback obligation. During the three and nine months ended September 30, 2020, the Company received carried interest distributions of $0.1 million and $0.2 million, respectively. Prior to these distributions, the Company received a carried interest distribution of $0.3 million from one of its managed funds, which had been fully liquidated as of December 31, 2019. In addition to thereceipt of these distributions, the Company has also received tax distributions related to the Company’s allocation of net income, which included an allocation of carried interest. Pursuant to the organizational documents of each respective fund, a portion of these tax distributions may be subject to clawback. As of September 30, 2020 and December 31, 2019, the Company had accrued $7.2 million for clawback obligations that would need to be paid if the funds were liquidated at fair value as of the end of the reporting period. The Company’s actual obligation, however, would not become payable or realized until the end of a fund’s life.

During each of the three and nine months ended September 30, 2020 and 2019, the the Company recorded reversals of previously recognized carried interest of $0.1 million.

Investment Income (loss) - Other

Other investment income is comprised of unrealized appreciation (depreciation) resulting from changes in fair value of the Company's equity method investments in addition to the income and expense allocations from such investments.

Stock-based Compensation

Stock-based compensation expense relating to equity based awards are measured at fair value as of the grant date, reduced for actual forfeitures in the period they occur, and expensed over the requisite service period on a straight-line basis as a component of compensation and benefits on the Company's consolidated statements of operations.

F- 12

Medley LLC

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Income Taxes

The Company accounts for income taxes using the asset and liability approach, which requires the recognition of tax benefits or expenses for temporary differences between the financial reporting and tax basis of assets and liabilities. A valuation allowance is established when necessary to reduce deferred tax assets to the amounts expected to be realized. The Company also recognizes a tax benefit from uncertain tax positions only if it is “more likely than not” that the position is sustainable based on its technical merits. The Company’s policy is to recognize interest and penalties on uncertain tax positions and other tax matters as a component of its provision for income taxes. For interim periods, the Company accounts for income taxes based on its estimate of the effective tax rate for the year. Discrete items and changes in its estimate of the annual effective tax rate are recorded in the period in which they occur.

As the Company is treated as a partnership for income tax purposes, it is not subject to U.S. federal, state and local income taxes since all income, gains and losses are passed through to its members. However, a portion of taxable income from Medley LLC and its subsidiaries are subject to New York City's unincorporated business tax, which is included in the Company's provision for income taxes.

Recently Issued Accounting Pronouncements Adopted as of January 1, 2020

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. This ASU modifies the disclosure requirements in Topic 820, Fair Value Measurement, by removing certain disclosure requirements related to the fair value hierarchy, modifying existing disclosure requirements related to measurement uncertainty, and adding new disclosure requirements. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. The Company adopted this ASU effective January 1, 2020 and the impact was not material.

In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force). This ASU aligns the accounting for costs incurred to implement a cloud computing arrangement that is a service arrangement with the guidance on capitalizing costs associated with developing or obtaining internal-use software. It addresses when costs should be capitalized rather than expensed, the term to use when amortizing capitalized costs, and how to evaluate the unamortized portion of these capitalized implementation costs for impairment. This ASU also includes guidance on how to present implementation costs in the financial statements and creates additional disclosure requirements. The accounting for the service element of a hosting arrangement that is a service contract is not affected by these amendments. Early adoption is permitted and can be applied either retrospectively or prospectively. The Company adopted this ASU on January 1, 2020 and has applied this new ASU on a prospective basis, and the impact was not material.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.

The guidance in this ASU clarifies and amends existing guidance. It is effective for public entities for annual reporting periods beginning after December 15, 2020 and interim periods within those reporting periods, with early adoption permitted. The Company adopted this guidance on January 1, 2020 and the impact was not material.

Recently Issued Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments in this ASU require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts and requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The amendments in this ASU are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. This ASU is effective for the Company on January 1, 2021 and will be adopted prospectively. The Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.

The Company does not believe any other recently issued, but not yet effective, revisions to authoritative guidance will have a material effect on its consolidated balance sheets, results of operations or cash flows.

F- 13

Medley LLC

Notes to Condensed Consolidated Financial Statements

(Unaudited)

3. REVENUES FROM CONTRACTS WITH CUSTOMERS

The majority of the Company's revenues are derived from investment management and advisory contracts that are accounted for in accordance with ASC 606.

Performance Obligations

Performance obligations are the unit of account under the revenue recognition standard and represent the distinct goods or services that are promised to the customer. The majority of the Company's contracts have a single performance obligation to provide asset management, advisory and other related services to permanent capital vehicles, long-dated private funds and separately managed accounts. The Company also has a separate performance obligation to act as an agent for certain third party lenders and provide loan administration services to certain borrowers. These loan administration services also represent a single performance obligation.

The Company primarily provides investment management services to a fund by managing the fund’s investments and maximizing returns on those investments. The Company’s asset management, advisory and other related services are transferred over time to the customer on a day-to-day basis. The contracts with each fund create a distinct performance obligation for each quarter the Company provides the promised services to the customer, from which the customer can benefit from each individual quarter of service. Furthermore, each quarter of the promised services is considered separately identifiable because there is no integration of the promised services between quarters, each quarter does not modify services provided prior to that quarter, and the services provided are not interdependent or interrelated. Most services provided to these funds are provided continuously over the contract period, so the services in the contract generally represent a single performance obligation comprising a series of distinct service periods. A contract’s transaction price is allocated to the series of distinct services that constitute a single performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.

The management fees earned by the Company are largely dependent on fluctuations in the market and, thus, the determination of such fees is highly susceptible to factors outside the Company's influence. Management fees typically have a large number and broad range of possible consideration amounts and historical experience is generally not indicative of future performance of the market. Hence, the Company is applying the exemption provided under the new revenue recognition guidance as the Company is unable to estimate the aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied and the variable consideration is allocated entirely to a wholly unsatisfied performance obligation.

Reimbursement of certain expenses incurred on behalf of the Company's funds are reported on a gross basis on the statements of operations if the Company is determined to be acting as the principal in those transactions.

Significant Judgments

The Company's contracts with customers generally include a single performance obligation to provide asset management, advisory and other related services on a quarterly basis. Revenues are recognized as such performance obligation is satisfied and the constraint on the management fees is lifted on a quarterly basis, hence, the Company does not need to exercise significant judgments in regards to management fees. Consideration for management fees is received on a quarterly basis as the performance obligations are satisfied.

With respect to performance fees based on the economic performance of its SMAs, significant judgment is required when determining recognition of revenues. Such judgments include:

• whether the fund is near final liquidation

• whether the fair value of the remaining assets in the fund is significantly in excess of the threshold at which the Company would earn an incentive fee

• the probability of significant fluctuations in the fair value of the remaining assets

• whether the SMA’s remaining investments are under contract for sale with contractual purchase prices that would result in no clawback and it is highly likely that the contracts will be consummated

As such, the Company will consider the above factors at each reporting period to determine whether there is an amount of the SMA performance fees which should be recognized as revenue because it is probable that there will not be a significant future revenue reversal, hence, the “constraint” on the performance fees has been lifted.

The Company accounts for performance fees which represent capital allocations to the general partner or investment manager pursuant to accounting rules relating to investments accounted for under the equity method of accounting. As such, these types of performance fees are not within the scope of the new revenue recognition standard and the above significant judgments and

F- 14

Medley LLC

Notes to Condensed Consolidated Financial Statements

(Unaudited)

constraints do not apply to them. Refer to Note 2, “Summary of Significant Accounting Policies,” and Note 4, “Investments,” for additional information.

Revenue by Category

The following table presents the Company's revenue from contracts with customers disaggregated by type of customer for the three and nine months ended September 30, 2020:

	Permanent Capital Vehicles		Long-dated Private Funds		SMAs		Other		Total
	(in thousands)
For the three months ended September 30, 2020
Management fees	$	4,045	$	1,097	$	1,133	$	—	$	6,275
Other revenues and fees	1,192		—		—		443		1,635
Total revenues from contracts with customers	$	5,237	$	1,097	$	1,133	$	443	$	7,910
For the nine months ended September 30, 2020
Management fees	$	12,855	$	3,633	$	3,319	$	—	$	19,807
Other revenues and fees	4,426		—		—		1,843		6,269
Total revenues from contracts with customers	$	17,281	$	3,633	$	3,319	$	1,843	$	26,076

Management fees in the table above are presented net of expense support payments under an expense support agreement entered into by the Company and MCC which became effective on June 1, 2020 (See Note 13). During the three and nine months ended September 30, 2020 such amounts were $0.4 million and $0.7 million respectively. In determining whether the expenses under the expense support agreement should be recorded on a gross or net basis on its consolidated statements of operations the Company followed the contract modification guidance in ASC 606. As the expense support agreement changes the existing enforceable rights and obligations of the parties to the original contract, the expense support agreement represents an agreed-upon change in the transaction price, and as such, is presented on a net basis within management fees on the Company's condensed consolidated statement of operations.

The following table presents the Company's revenue from contracts with customers disaggregated by type of customer for the three and nine months ended September 30, 2019:

	Permanent Capital Vehicles		Long-dated Private Funds		SMAs		Other		Total
	(in thousands)
For the three months ended September 30, 2019
Management fees	$	6,593	$	1,616	$	1,398	$	—	$	9,607
Other revenues and fees	2,075		—		—		546		2,621
Total revenues from contracts with customers	$	8,668	$	1,616	$	1,398	$	546	$	12,228
For the nine months ended September 30, 2019
Management fees	$	21,144	$	5,185	$	4,399	$	—	$	30,728
Other revenues and fees	5,327		—		—		2,404		7,731
Total revenues from contracts with customers	$	26,471	$	5,185	$	4,399	$	2,404	$	38,459

Other revenues and fees reflected in the tables above consist of: (i) revenues earned under administration agreements, as described in Note 13, (ii) revenues earned by Medley while serving as loan administrative agent on certain deals, including loan administration fees and transaction fees, (iii) reimbursable origination and deal related expenses, (iv) reimbursable entity formation and organizational expenses and (v) consulting fees for providing non-advisory services related to one of the Company's managed funds.

F- 15

Medley LLC

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The Company's asset management, advisory and other related services are transferred over time and the Company recognizes these revenues over the period of time these services are provided.

Contract Balances

For certain customers, the Company has a performance obligation to provide loan administration services. The timing of revenue recognition may differ from the timing of invoicing to such customers or receiving consideration. For the majority of these services cash deposits are received prior to the performance obligation being met. The performance obligation of acting as a loan administrator is satisfied over time; therefore, the Company defers any payments received upfront as deferred revenue and recognizes revenue on a pro-rata basis over time as the loan administrative services are performed.

These contract liabilities are reported as deferred revenue within accounts payable, accrued expenses and other liabilities on the Company's condensed consolidated balance sheets and were $0.2 million as of September 30, 2020 and December 31, 2019. During the three months ended September 30, 2020 and 2019, the Company recognized revenue from amounts included in deferred revenue of $0.1 million and $0.2 million, respectively, and received cash deposits of $0.1 million and $0.2 million, respectively. During the nine months ended September 30, 2020 and 2019, the Company recognized revenue from amounts included in deferred revenue of $0.4 million and $0.5 million, respectively, and received cash deposits of $0.3 million for each of those periods.

The Company did not have any contract assets as of September 30, 2020 or December 31, 2019.

Assets Recognized for the Costs to Obtain or Fulfill a Contract

As part of providing investment management services to a fund, the Company might incur certain placement fees to third parties for obtaining new investors for the fund. Any placement fees incurred to third party placement agents for placing investors into a fund are variable as it is based on a percentage of future fees and cannot be reasonably estimated. The Company determined that placement fees which are paid in cash over time as fees are earned, do not relate to a new contract at the time the payment is made. These costs do not represent a cost to obtain a new contract but rather a cost to fulfill an existing contract. The Company does not recognize any assets for the incremental costs of obtaining or fulfilling a contract with a customer and expenses placement fees as incurred.

4. INVESTMENTS

Investments consist of the following:

	As of
	September 30, 2020		December 31, 2019
	(in thousands)
Equity method investments, at fair value	$	9,589	$	11,650
Investment held at cost less impairment	48		196
Investments of consolidated fund	—		1,441
Total investments, at fair value	$	9,637	$	13,287

Equity Method Investments

Medley measures the carrying value of its public non-traded equity method investment in Sierra Income Corporation (“SIC” or “Sierra”), a related party, at NAV per share. Unrealized appreciation (depreciation) resulting from changes in NAV per share is reflected as a component of other investment (loss) income, net on the Company's condensed consolidated statements of operations. The carrying value of the Company’s privately-held equity method investments is determined based on the amounts invested by the Company plus the equity in earnings or losses of the investee allocated based on the respective underlying agreements, less distributions received.

The Company evaluates its equity method investments for impairment whenever events or changes in circumstances indicate that the carrying amounts of such investments may not be recoverable. There were no impairment losses recorded during the three and nine months ended September 30, 2020 and 2019.

The Company's equity method investment in shares of Sierra was $5.4 million and $6.4 million as of September 30, 2020 and December 31, 2019, respectively. The remaining balance as of September 30, 2020 and December 31, 2019 relates primarily to the Company’s investments in Medley Opportunity Fund II, LP (“MOF II”), Medley Opportunity Fund III LP (“MOF III”), Medley Opportunity Fund Offshore III LP (“MOF III Offshore”) and Aspect-Medley Investment Platform B LP (“Aspect B”).

F- 16

Medley LLC

Notes to Condensed Consolidated Financial Statements

(Unaudited)

For performance fees earned which represent a capital allocation to the general partner or investment manager, the Company accounts for them under the equity method of accounting. As of September 30, 2020 and December 31, 2019, the balance due to the Company for such performance fees was $0.8 million and $0.9 million, respectively. Revenues associated with these performance fees are classified as carried interest within investment income (loss) on the Company's condensed consolidated statements of operations.

The entities in which the Company's investments are accounted for under the equity method are considered to be related parties.

Investment Held at Cost Less Impairment

The Company measures its investment in CK Pearl Fund, LP at cost less impairment, adjusted for observable price changes for an identical or similar investment of the same issuer as well as any distributions received during the period. The Company performs a quantitative and qualitative assessment at each reporting date to determine whether the investment is impaired and an impairment loss equal to the difference between the carrying value and fair value is recorded within other income (expenses), net on the Company's condensed consolidated statement of operations if an impairment has been determined. During the nine months ended September 30, 2020, the Company recorded an impairment loss of $0.1 million. There were no impairment losses recorded during the three months ended September 30, 2020 and 2019 nor during the three months ended September 30, 2019.

Investments of consolidated fund

As of December 31, 2019, Medley measured the carrying value of investments held by its consolidated fund, which consisted of $0.2 million of equity investments and $1.3 million of senior secured loans. There were no investments of consolidated fund as of September 30, 2020, as a result of the deconsolidation of STRF on April 6, 2020.

5. FAIR VALUE MEASUREMENTS

Fair value is the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where available, fair value is based on observable market prices or parameters, or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models are applied. These valuation models involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments’ complexity. The Company’s fair value analysis includes an analysis of the value of any unfunded loan commitments. Financial investments recorded at fair value in these condensed consolidated financial statements are categorized for disclosure purposes based upon the level of judgment associated with the inputs to the valuation of the investment as of the measurement date. Investments which are valued using NAV as a practical expedient are excluded from this hierarchy:

• Level I – Valuations based on quoted prices in active markets for identical assets or liabilities at the measurement date.

• Level II – Valuations based on inputs other than quoted prices in active markets included in Level I, which are either directly or indirectly observable at the measurement date. This category includes quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in non-active markets including actionable bids from third parties for privately held assets or liabilities, and observable inputs other than quoted prices such as yield curves and forward currency rates that are entered directly into valuation models to determine the value of derivatives or other assets or liabilities.

• Level III – Valuations based on inputs that are unobservable and where there is little, if any, market activity at the measurement date. The inputs for the determination of fair value may require significant management judgment or estimation and are based upon management’s assessment of the assumptions that market participants would use in pricing the assets and liabilities. These investments include debt and equity investments in private companies or assets valued using the Market or Income Approach and may involve pricing models whose inputs require significant judgment or estimation because of the absence of any meaningful current market data for identical or similar investments. The inputs in these valuations may include, but are not limited to, capitalization and discount rates, beta and EBITDA multiples. The information may also include pricing information or broker quotes which include a disclaimer that the broker would not be held to such a price in an actual transaction. The non-binding nature of consensus pricing and/or quotes accompanied by disclaimer would result in classification as Level III information, assuming no additional corroborating evidence.

There were no financial assets or liabilities at fair value as of September 30, 2020 due to the deconsolidation of STRF and settlement of the amounts due to DB Med Investors in April 2020.

F- 17

Medley LLC

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The following tables summarize the fair value hierarchy of the Company's financial assets and liabilities measured at fair value as of December 31, 2019:

	As of December 31, 2019
	Level I		Level II		Level III		Total
Assets	(in thousands)
Investments of consolidated fund	$	110	$	—	$	1,331	$	1,441
Total Assets	$	110	$	—	$	1,331	$	1,441
Liabilities
Due to DB Med Investors (Note 11)	$	—	$	—	$	1,750	$	1,750
Total Liabilities	$	—	$	—	$	1,750	$	1,750

Included in investments of consolidated fund as of December 31, 2019 are Level I assets of $0.1 million in equity investments and Level III assets of $1.3 million, which consists of senior secured loans and equity investments. The significant unobservable inputs used in the fair value measurement of Level III assets of the consolidated fund's investments in senior secured loans include market yields. Significant increases or decreases in market yields in isolation would result in a significantly higher or lower fair value measurement. There were no significant unrealized gains or losses related to the investments of consolidated fund for the three and nine months ended September 30, 2020 and 2019.

The following is a summary of changes in fair value of the Company's financial assets that have been categorized within Level III of the fair value hierarchy:

	Level III Financial Assets as of September 30, 2020
	Balance at December 31, 2019		Deconsolidation of STRF		Transfers In or (Out) of Level III	Realized and Unrealized Depreciation		Sale of Level III Assets		Balance at September 30, 2020
	(in thousands)
Investments of consolidated fund	$	1,331	(940	)	—	(295	)	(96	)	$	—

The following is a summary of changes in fair value of the Company's financial liabilities that have been categorized within Level III of the fair value hierarchy:

	Level III Financial Liabilities as of September 30, 2020
	Balance at December 31, 2019		Settlement of liability to DB Med Investors, at fair value		Payments	Realized and Unrealized Depreciation		Balance at September 30, 2020
	(in thousands)
Due to DB Med Investors (Note 11)	$	1,750	(1,541	)	—	(209	)	$	—

A review of the fair value hierarchy classifications is conducted on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification for certain financial assets or liabilities. Reclassifications impacting all levels of the fair value hierarchy are reported as transfers in or out of Level I, II or III category as of the beginning of the quarter during which the reclassifications occur. There were no transfers between levels in the fair value hierarchy during the three and nine months ended September 30, 2020.

When determining the fair value of publicly traded equity securities, the Company uses the quoted closing market price as of the valuation date on the primary market or exchange on which they trade. Our equity method investments for which fair value is measured at NAV per share, or its equivalent, using the practical expedient, are not categorized in the fair value hierarchy.

Prior to the deconsolidation of STRF on April 6, 2020, the Company's investments of consolidated fund were treated as investments at fair value and any realized and unrealized gains and losses from those investments were recorded through the

F- 18

Medley LLC

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Company's condensed consolidated statements of operations. The Company's treatment was consistent with that of STRF, which is considered an investment company under ASC 946, Financial Services - Investment Companies, for standalone reporting purposes. The fair value of the Company's liability to DB Med Investors at December 31, 2019 was derived from the net asset value of shares of STRF which was held by the Company. On April 6, 2020, such shares were distributed to DB Med Investors in satisfaction of the Company's liability to them. Changes in unrealized losses related to the Company's due to DB Med Investors liability were all included in earnings.

6. LEASES

At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the circumstances present. Leases with a term greater than one year are recognized on the balance sheet as right-of-use assets and lease liabilities. Lease liabilities and the corresponding right-of-use assets are recorded based on the present values of lease payments over the expected lease terms. The Company’s expected lease terms may include options to extend or terminate the lease when it is reasonably certain that it will exercise that option. When determining if a renewal option is reasonably certain of being exercised, the Company considers several factors, including but not limited to, the significance of leasehold improvements incurred on the property, whether the asset is difficult to replace, or specific characteristics unique to the particular lease that would make it reasonably certain that the Company would exercise such option. The Company has concluded that renewal and early termination options are not reasonably certain of being exercised by the Company and thus not included in the calculation of its right-of-use assets and operating lease liabilities. The interest rate implicit in lease contracts is typically not readily determinable. As such, the Company utilizes the appropriate incremental borrowing rates, which are the rates that would be incurred to borrow on a collateralized basis, over similar terms, amounts equal to the lease payments in a similar economic environment. Variable payments that do not depend on a rate or index are not included in the lease liability and are recognized as incurred. If significant events, changes in circumstances, or other events indicate that the lease term or other inputs have changed, the Company would reassess lease classification, re-measure the lease liability by using revised inputs as of the reassessment date, and adjust the underlying right-of-use asset.

Substantially all of the Company's operating leases are comprised of its office space in New York City and San Francisco which expire at various times through September 2023. The Company does not have any contracts that would be classified as a finance lease or any operating leases that contain variable payments.

The components of lease cost and other information during the three and nine months ended September 30, 2020 and 2019 are as follows:

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2020			2019			2020			2019
Lease cost	(in thousands)
Operating lease costs	$	634		$	637		$	1,914		$	1,895
Variable lease costs	—			—			—			—
Sublease income	(110		)	(113		)	(329		)	(342		)
Total lease cost	$	524		$	524		$	1,585		$	1,553

Supplemental balance sheet information related to leases as of September 30, 2020 and December 31, 2019 is as follows:

	As of
	September 30, 2020		December 31, 2019
Weighted-average remaining lease term (in years)	2.8		3.5
Weighted-average discount rate	8.2	%	8.2	%

On June 29, 2020, the Company entered into a letter agreement with its landlord for its New York headquarters, pursuant to which the Company was granted its request for a concession from the landlord to defer rent payments for the months of May, June, July and August 2020 until 2021. The deferred rent payments, which aggregated to $0.8 million, will be paid back in nine equal monthly installments commencing on January 1, 2021.

F- 19

Medley LLC

Notes to Condensed Consolidated Financial Statements

(Unaudited)

In April 2020, the FASB staff issued a question and answer document (“FASB Q&A”) focused on the application of lease accounting guidance to lease concessions provided as a result of the COVID-19 pandemic. Under existing lease guidance, the Company would have to determine, on a lease-by-lease basis, if a lease concession was the result of a new arrangement reached with the tenant or if a lease concession was under the enforceable rights and obligations within the existing lease agreement. The FASB Q&A allows the Company, if certain criteria have been met, to bypass the lease-by-lease analysis, and instead elect to either apply the lease modification accounting framework or not, with such election applied consistently to leases with similar characteristics and similar circumstances. The Company elected to apply such relief and availed itself of the election to avoid performing a lease-by-lease analysis for the lease concessions received as the concessions granted as relief were due to the COVID-19 pandemic and result in the cash flows to the landlord remaining substantially the same or less.

Future payments for operating leases as of September 30, 2020 are as follows (in thousands):

Remaining in 2020 (October 1st through December 31st)	$	728
2021	3,288
2022	2,441
2023	1,823
Total future lease payments	8,280
Less imputed interest	(860		)
Operating lease liabilities, at September 30, 2020	$	7,420

7. OTHER ASSETS

Other assets consist of the following:

	As of
	September 30, 2020		December 31, 2019
	(in thousands)
Fixed assets, net of accumulated depreciation and amortization of $4,386 and $3,847, respectively	$	2,041	$	2,564
Security deposits	1,975		1,975
Administrative fees receivable (Note 13)	1,252		1,073
Due from affiliates (Note 13)	1,829		2,693
Prepaid expenses and income taxes	2,674		746
Other assets	302		676
Total other assets	$	10,073	$	9,727

8. SENIOR UNSECURED DEBT

The carrying value of the Company’s senior unsecured debt consists of the following:

	As of
	September 30, 2020		December 31, 2019
	(in thousands)
2026 Notes, net of unamortized discount and debt issuance costs of $2,308 and $2,584, respectively	$	51,287	$	51,011
2024 Notes, net of unamortized premium and debt issuance costs of $1,329 and $1,629 respectively	67,671		67,371
Total senior unsecured debt	$	118,958	$	118,382

F- 20

Medley LLC

Notes to Condensed Consolidated Financial Statements

(Unaudited)

2026 Notes 

On August 9, 2016 and October 18, 2016, the Company issued debt consisting of $53.6 million in aggregate principal amount of senior unsecured notes due 2026 at a stated coupon rate of 6.875% (the "2026 Notes"). The net proceeds from these offerings were used to pay down a portion of the Company's outstanding indebtedness under its term loan facility with Credit Suisse, which was terminated in February 2017. Interest is payable quarterly. The 2026 Notes are subject to redemption in whole or in part at any time or from time to time, at the option of the Company, on or after August 15, 2019 at a redemption price per security equal to 100% of the outstanding principal amount thereof plus accrued and unpaid interest payments. The 2026 notes were recorded net of discount and direct issuance costs of $3.8 million which are being amortized over the term of the notes using the effective interest rate method. The 2026 Notes are listed on the New York Stock Exchange and trade thereon under the trading symbol “MDLX.” The fair value of the 2026 Notes based on their underlying quoted market price was $14.6 million as of September 30, 2020.

Interest expense on the 2026 Notes, including accretion of note discount and amortization of debt issuance costs, was $1.0 million for each of the three months ended September 30, 2020 and 2019. For each of the nine months ended September 30, 2020 and 2019, such interest expense was $3.0 million.

2024 Notes

On January 18, 2017 and February 22, 2017, the Company issued $69.0 million in aggregate principal amount of senior unsecured notes due 2024 at a stated coupon rate of 7.25% (the "2024 Notes"). The net proceeds from these offerings were used to pay down the remaining portion of the Company's outstanding indebtedness under its Term Loan Facility with the remaining to be used for general corporate purposes. Interest is payable quarterly and interest payments commenced on April 30, 2017. The 2024 Notes are subject to redemption in whole or in part at any time or from time to time, at the option of the Company, on or after January 30, 2020 at a redemption price per security equal to 100% of the outstanding principal amount thereof plus accrued and unpaid interest payments. The 2024 notes were recorded net of premium and direct issuance costs of $2.8 million which are being amortized over the term of the notes using the effective interest rate method. The 2024 Notes are listed on the New York Stock Exchange and trade thereon under the trading symbol “MDLQ.” The fair value of the 2024 Notes based on their underlying quoted market price was $20.5 million as of September 30, 2020.

Interest expense on the 2024 Notes, including amortization of debt premium and debt issuance costs, was $1.4 million for each of the three months ended September 30, 2020 and 2019. For each of the nine months ended September 30, 2020 and 2019, such interest expense was $4.1 million.

9. LOANS PAYABLE

Loans payable consist of the following:

	As of
	September 30, 2020		December 31, 2019
	(in thousands)
Non-recourse promissory notes	$	10,000	$	10,000
Total loans payable	$	10,000	$	10,000

In April 2012, the Company borrowed $10.0 million under two non-recourse promissory notes. Proceeds from the borrowings were used to purchase 1,108,033 shares of common stock of SIC, which were pledged as collateral for the obligations. Interest on the notes is paid monthly and is equal to the dividends received by the Company related to the pledged shares. The Company may prepay the notes in whole or in part at any time without penalty and the lenders may call the notes if certain conditions are met. The proceeds from the notes were recorded net of issuance costs of $3.8 million and were being accreted, using the effective interest method, over the original term of the non-recourse promissory notes. During the three months ended September 30, 2020, there was no interest expense under these notes. During the three months ended September 30, 2019, total interest expense under these notes, including accretion of the notes discount, was $0.2 million. During the nine months ended September 30, 2020 and 2019, interest expense under these notes, including accretion of the notes discount, was $0.2 million and $0.7 million, respectively. The notes had an original maturity date of March 31, 2019. Through various amendments dated February 28, 2019, June 28, 2019, December 8, 2019, March 27, 2020 and June 30, 2020, the maturity date had been extended, with the latest amendment, extending the maturity date to December 31, 2020. As consideration paid for the June 28, 2019 amendment, the interest rate on these notes was increased by 1.0% per annum. As consideration received for the June 30, 2020 amendment, the 1.0% increase in the interest per annum is no longer in effect for periods subsequent to June 30, 2020. The fair value of the outstanding balance of the notes was $10.0 million as of September 30, 2020 and December 31, 2019.

F- 21

Medley LLC

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Contractual Maturities of Loans Payable

The $10.0 million of future principal payments will be due on December 31, 2020. The notes can also be settled in full by delivery of 1,108,033 shares of common stock of Sierra, which were pledged as collateral for the obligations.

10. DUE TO FORMER MINORITY INTEREST HOLDER

This balance consists of the following:

	As of
	September 30, 2020		December 31, 2019
	(in thousands)
Due to former minority interest holder, net of unamortized discount of $817 and $1,480, respectively	$	7,233	$	8,145
Total due to former minority interest holder	$	7,233	$	8,145

In January 2016, the Company executed an amendment to SIC Advisors' operating agreement which provided the Company with the right to redeem membership units owned by the minority interest holder, Strategic Capital Advisory Services, LLC ("SCAS"). The Company’s redemption right was triggered by the termination of the dealer manager agreement between Sierra and SC Distributors LLC ("DMA Termination"), an affiliate of the minority interest holder. As a result of this redemption feature, the Company reclassified the non-controlling interest in SIC Advisors from the equity section of its consolidated balance sheet to redeemable non-controlling interests in the mezzanine section of its consolidated balance sheet based on its fair value as of the amendment date. On July 31, 2018, a DMA Termination event occurred and, as a result, the Company reclassified the redeemable non-controlling interest in SIC Advisors from redeemable non-controlling interests in the mezzanine section of its consolidated balance sheet to due to former minority interest holder, a component of total liabilities on the Company's consolidated balance sheet, based on its fair value as of that date.

In December 2018, Medley LLC entered into a Letter Agreement with SCAS, whereby consideration of $14.0 million was agreed upon for the satisfaction in full of all amounts owed by Medley under the LLC Agreement. The amount due was payable in sixteen equal installments through August 5, 2022. The unamortized discount is being amortized over the term of the payable using the effective interest method.

As a result of the ongoing economic impact of COVID-19, the Company did not pay its installment payment that was due in May 2020 and commenced discussions with SCAS to seek deferral of a portion of the upcoming installment payments until 2021 through 2023. On August 4, 2020, the Company and SCAS entered into an amendment to the Letter Agreement which, among other items, revises the payment terms under the original letter agreement. The payment terms were amended such that the remaining balance due to SCAS would be payable as follows: $700,000 on August 5, 2020, followed by three quarterly installments of $350,000 and quarterly installments thereafter of $1.0 million through February 5, 2023. The Company accounted for this concession as a troubled debt restructuring and as the future undiscounted cash flows from the revised agreement was greater than the carrying value of the amount due at the date of the concession. As a result a new effective rate was established based on the carrying value of the original liability and the revised cash flows.

As of September 30, 2020, future payments due to the former minority interest holder, including principal and implied interest, were as follows (in thousands):

Remaining in 2020 (October 1st through December 31st)	$	350
2021	2,700
2022	4,000
2023	1,000
Total future payments	$	8,050

During the three and nine months ended September 30, 2020, the amortization of the discount was $0.2 million and $0.7 million, respectively, and is included as a component of interest expense on the Company's condensed consolidated statements of operations. During the three and nine months ended September 30, 2019 the amortization of the discount was $0.3 million and $0.8 million, respectively, and is included as a component of interest expense on the Company's condensed consolidated statements of operations.

F- 22

Medley LLC

Notes to Condensed Consolidated Financial Statements

(Unaudited)

11. ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER LIABILITIES

Accounts payable, accrued expenses and other liabilities consist of the following:

	As of
	September 30, 2020		December 31, 2019
	(in thousands)
Accrued compensation and benefits	$	3,496	$	6,161
Due to affiliate (Note 13)	7,224		7,212
Revenue share payable (Note 12)	7,292		2,316
Accrued interest	1,294		1,294
Professional fees	4,169		1,481
Due to DB Med Investors, at fair value	—		1,750
Accounts payable and other accrued expenses	2,467		1,672
Total accounts payable, accrued expenses and other liabilities	$	25,942	$	21,886

On June 3, 2016, the Company entered into a Master Investment Agreement with DB MED Investor I LLC and DB MED Investor II LLC ("DB Med Investors’’) to invest in new and existing Medley managed funds (the "Joint Venture"). Under the Master Investment Agreement, as amended (the "MIA"), DB Med Investors have the right upon the occurrence of certain events (the "Put Option Trigger Event") to redeem their interests in the Joint Venture. In October 2019, a Put Option Trigger Event had occurred. On October 22, 2019, Medley LLC, Medley Seed Funding I LLC (“Seed Funding I”) and Medley Seed Funding II LLC (“Seed Funding II”) received notice from DB Med Investors that they exercised their put option right under the MIA. In connection with the exercise of DB Med Investors put option right, the Company reclassified the Joint Venture's minority interest balance from redeemable non-controlling interests in the mezzanine section of its consolidated balance sheet (Note 16) to due to DB Med Investors, a component of accounts payable, accrued expenses and other liabilities, at its then fair value of $18.1 million. In addition, the Company elected to subsequently remeasure the liability under ASC 825, Financial Instruments, with changes recorded through earnings. The fair value of this liability at December 31, 2019 was determined to be $1.8 million which represented the fair value of the remaining assets held in the Medley Seed Funding entities at December 31, 2019, which, as further described below, was distributed to DB Med Investors on April 6, 2020 at its then fair value of $1.5 million.

In accordance with its obligations under the MIA, on October 25, 2019 and October 28, 2019, Seed Funding I distributed to DB Med Investors all of its assets, including all of its shares of MCC, which had an aggregate fair value on the date of transfer of $16.5 million, and cash of less than $0.1 million. Seed Funding II distributed to DB Med Investors all of its assets, including cash of $0.2 million and approximately 82,121 shares held by Seed Investor II in STRF on April 6, 2020.

12. COMMITMENTS AND CONTINGENCIES

Operating Leases

Refer to Note 6 to these condensed consolidated financial statements.

Capital Commitments to Funds

As of September 30, 2020 and December 31, 2019, the Company had aggregate unfunded commitments of $0.3 million to certain long-dated private funds.

Other Commitments

In April 2012, the Company entered into an obligation to pay to a third party a fixed percentage of management and incentive fees received by the Company from Sierra. The agreement was entered into contemporaneously with the $10.0 million non-recourse promissory notes that were issued to the same parties (Note 9). The two transactions were deemed to be related freestanding contracts and the $10.0 million of loan proceeds were allocated to the contracts using their relative fair values. At inception, the Company recognized an obligation of $4.4 million representing the present value of the future cash flows expected to be paid under this agreement. Each quarter the Company performs an analysis to recalculate the fair value of the revenue share obligation. The analysis includes assumptions related to expected future cash flows, present value discount rate and the renewal of the investment advisory agreement with Sierra, which is subject to an annual renewal and may also be terminated by Sierra upon 60 days' notice to the Company. As of September 30, 2020 and December 31, 2019, this obligation amounted to $7.3 million and $2.3 million, respectively, and is recorded as revenue share payable, a component of accounts payable, accrued expenses and other

F- 23

Medley LLC

Notes to Condensed Consolidated Financial Statements

(Unaudited)

liabilities on the Company's consolidated balance sheets. The change in the estimated cash flows for this obligation is recorded in other expenses, net on the Company's consolidated statements of operations.

On January 31, 2019, the Company entered into a termination agreement with the lenders which would have become effective upon the closing of the Company's then-pending (and now terminated) merger with Sierra. In accordance with the provisions of the termination agreement, the Company would have paid the lenders $6.5 million on or prior to the merger closing date, reimbursed the lenders for their out of pocket legal fees and entered into a six month $6.5 million promissory note. The promissory note would have borne interest at seven percentage points over the LIBOR Rate, as defined in the termination agreement. Such consideration would have been for the full satisfaction of the two non-recourse promissory notes described in Note 9 as well as the Company's revenue share obligation described above. On May 1, 2020, the Company had received a notice of termination from Sierra, of its previously announced merger. Because the termination agreement and economic terms described above were conditioned upon closing of the merger, the agreement has been effectively rendered void.

Legal Proceedings

From time to time, the Company is involved in various legal proceedings, lawsuits and claims incidental to the conduct of its business. Its business is also subject to extensive regulation, which may result in regulatory proceedings against it. Except as described below, the Company is not currently party to any material legal proceedings.

One of the Company's subsidiaries, MCC Advisors LLC, was named as a defendant in a lawsuit on May 29, 2015, by Moshe Barkat and Modern VideoFilm Holdings, LLC (“MVF Holdings”) against MCC, MOF II, MCC Advisors LLC, Deloitte Transactions and Business Analytics LLP A/K/A Deloitte ERG (“Deloitte”), Scott Avila (“Avila”), Charles Sweet, and Modern VideoFilm, Inc. (“MVF”). The lawsuit is pending in the California Superior Court, Los Angeles County, Central District, as Case No. BC 583437. The lawsuit was filed after MCC, as agent for the lender group, exercised remedies following a series of defaults by MVF and MVF Holdings on a secured loan with an outstanding balance at the time in excess of $65 million. The lawsuit sought damages in excess of $100 million. Deloitte and Avila have settled the claims against them in exchange for payment of $1.5 million. On June 6, 2016, the court granted the Medley defendants’ demurrers on several counts and dismissed Mr. Barkat’s claims with prejudice except with respect to his claim for intentional interference with contract. On March 18, 2018, the court granted the Medley defendants’ motion for summary adjudication with respect to Mr. Barkat’s sole remaining claim against the Medley Defendants for intentional interference. Now that the trial court has ruled in favor of the Medley defendants on all counts, the only remaining claims in the Barkat litigation are MCC and MOF II’s affirmative counterclaims against Mr. Barkat and MVF Holdings, which MCC and MOF II are diligently prosecuting.

On August 29, 2016, MVF Holdings filed another lawsuit in the California Superior Court, Los Angeles County, Central District, as Case No. BC 631888 (the “Derivative Action”), naming MCC Advisors LLC and certain of Medley’s employees as defendants, among others. The plaintiff in the Derivative Action, asserts claims against the defendants for breach of fiduciary duty, aiding and abetting breach of fiduciary duty, unfair competition, breach of the implied covenant of good faith and fair dealing, interference with prospective economic advantage, fraud, and declaratory relief. MCC Advisors LLC and the other defendants believe the causes of action asserted in the Derivative Action are without merit and all defendants intend to continue to assert a vigorous defense. On October 16, 2020, the parties agreed to a settlement of all claims arising in connection with the Hugh Miller matter, the MVF Derivative Action and the MVF chapter 11 proceedings. The settlement was read into the record on October 16, 2020 at a hearing in the MVF Derivative Action. The settlement is binding, subject to bankruptcy court approval in the MVF bankruptcy proceedings. A hearing to approve the settlement is scheduled for November 30, 2020. Pursuant to the settlement, subject to bankruptcy court approval, the Lenders will pay the plaintiffs a total of $5 million. All of the $5 million is being funded by the insurance carriers for the Lenders pro rata based on their participation in the original loan to MVF.

Medley LLC, Medley Capital Corporation, Medley Opportunity Fund II LP, Medley Management, Inc., Medley Group, LLC, Brook Taube, and Seth Taube (the “Medley Defendants”) were named as defendants, along with other various parties, in a putative class action lawsuit captioned as Royce Solomon, Jodi Belleci, Michael Littlejohn, and Giulianna Lomaglio v. American Web Loan, Inc., AWL, Inc., Mark Curry, MacFarlane Group, Inc., Sol Partners, Medley Opportunity Fund, II, LP, Medley LLC, Medley Capital Corporation, Medley Management, Inc., Medley Group, LLC, Brook Taube, Seth Taube, DHI Computing Service, Inc., Middlemarch Partners, and John Does 1-100, filed on December 15, 2017, amended on March 9, 2018, and amended a second time on February 15, 2019, in the United States District Court for the Eastern District of Virginia, Newport News Division, as Case No. 4:17-cv-145 (hereinafter, “Class Action 1”). Medley Opportunity Fund II LP and Medley Capital Corporation were also named as defendants, along with various other parties, in a putative class action lawsuit captioned George Hengle and Lula Williams v. Mark Curry, American Web Loan, Inc., AWL, Inc., Red Stone, Inc., Medley Opportunity Fund II LP, and Medley Capital Corporation, filed February 13, 2018, in the United States District Court, Eastern District of Virginia, Richmond Division, as Case No. 3:18-cv-100 (“Class Action 2”). Medley Opportunity Fund II LP and Medley Capital Corporation were also named as defendants, along with various other parties, in a putative class action lawsuit captioned John Glatt, Sonji Grandy, Heather Ball,

F- 24

Medley LLC

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Dashawn Hunter, and Michael Corona v. Mark Curry, American Web Loan, Inc., AWL, Inc., Red Stone, Inc., Medley Opportunity Fund II LP, and Medley Capital Corporation, filed August 9, 2018 in the United States District Court, Eastern District of Virginia, Newport News Division, as Case No. 4:18-cv-101 (“Class Action 3”) (together with Class Action 1 and Class Action 2, the “Virginia Class Actions”). Medley Opportunity Fund II LP was also named as a defendant, along with various other parties, in a putative class action lawsuit captioned Christina Williams and Michael Stermel v. Red Stone, Inc. (as successor in interest to MacFarlane Group, Inc.), Medley Opportunity Fund II LP, Mark Curry, Brian McGowan, Vincent Ney, and John Doe entities and individuals, filed June 29, 2018 and amended July 26, 2018, in the United States District Court for the Eastern District of Pennsylvania, as Case No. 2:18-cv-2747 (the “Pennsylvania Class Action”).

On October 26, 2020, Medley Opportunity Fund II LP and Medley Capital Corporation were served with a new complaint in a putative class action lawsuit captioned Charles P. McDaniel v. Mark Curry, American Web Loan, Inc., Red Stone, Inc., Medley Opportunity Fund II LP, and Medley Capital Corporation, filed October 22, 2020, in the Circuit Court of Ohio County, West Virginia, as Case No. 20-C-169 (the “West Virginia Class Action”)(together with the Virginia Class Actions and the Pennsylvania Class Action, the “Class Action Complaints”).

The plaintiffs in the Virgina and Pennsylvania Class Action Complaints filed their putative class actions alleging claims under the Racketeer Influenced and Corrupt Organizations Act, and various other claims arising out of the alleged payday lending activities of American Web Loan. The claims against Medley Opportunity Fund II LP, Medley LLC, Medley Capital Corporation, Medley Management, Inc., Medley Group, LLC, Brook Taube, and Seth Taube (in Class Action 1, as amended); Medley Opportunity Fund II LP and Medley Capital Corporation (in Class Action 2 and Class Action 3); and Medley Opportunity Fund II LP (in the Pennsylvania Class Action), allege that those defendants in each respective action exercised control over, or improperly derived income from, and/or obtained an improper interest in, American Web Loan’s payday lending activities as a result of a loan to American Web Loan. The plaintiff in the West Virginia Class Action Complaint filed his putative class action alleging claims arising West Virginia state law’s regulating interest rates and other fees in connection with consumer lending activities.

The loan was made by Medley Opportunity Fund II LP in 2011. American Web Loan repaid the loan from Medley Opportunity Fund II LP in full in February of 2015, more than 1 year and 10 months prior to any of the loans allegedly made by American Web Loan to the alleged class plaintiff representatives in Class Action 1. In Class Action 2, the alleged class plaintiff representatives had not alleged when they received any loans from American Web Loan. In Class Action 3, the alleged class plaintiff representatives claim to have received loans from American Web Loan at various times from February 2015 through April 2018. In the Pennsylvania Class Action, the alleged class plaintiff representatives claim to have received loans from American Web Loan in 2017.

By orders dated August 7, 2018 and September 17, 2018, the Court presiding over the Virginia Class Actions consolidated those cases for all purposes. On October 12, 2018, Plaintiffs in Class Action 3 filed a notice of voluntary dismissal of all claims, and on October 29, 2018, Plaintiffs in Class Action 2 filed a notice of voluntary dismissal of all claims.

On April 16, 2020, the parties to Class Action 1 reached a settlement reflected in a Settlement Agreement (the “Settlement Agreement”) that has been publicly filed in Class Action 1 (ECF No. 414-1). The Settlement Agreement was subject to court approval. At a hearing on November 4, 2020, the court denied the plaintiffs’ motion to approve the settlement and ordered the parties to mediation in front of Judge Novak of the Eastern District of Virginia in December of 2020.

On October 29, 2020, the parties to the Pennsylvania Class Action reached a settlement pursuant to which AWL agreed to make a payment to the plaintiffs and to forgive loans that they owed AWL. The Medley Defendants obtained a full release and bore none of the settlement amount. The Pennsylvania Class Action was dismissed with prejudice on November 2, 2020.

The Medley Defendants and the other defendants believe the alleged claims asserted in the Virginia Class Action and the West Virginia putative class action are without merit and they are defending these lawsuits vigorously.

On May 11, 2020, the court approved a settlement and dismissed two purported class actions that had been commenced in the Supreme Court of the State of New York, County of New York, by alleged stockholders of Medley Capital Corporation, captioned, respectively, Helene Lax v. Brook Taube, et al., Index No. 650503/2019, and Richard Dicristino, et al. v. Brook Taube, et al., Index No. 650510/2019 (together with the Lax Action, the “New York Actions”). Named as defendants in each complaint were Brook Taube, Seth Taube, Jeffrey Tonkel, Arthur S. Ainsberg, Karin Hirtler-Garvey, John E. Mack, Mark Lerdal, Richard T. Allorto, Jr., Medley Capital Corporation (“MCC”), MDLY, Sierra Income Corporation (“Sierra”), and Sierra Management, Inc. The complaints in each of the New York Actions alleged that the individuals named as defendants breached their fiduciary duties in connection with the proposed merger of MCC with and into Sierra, and that the other defendants aided and abetted those alleged breaches of fiduciary duties. Compensatory damages in unspecified amounts were sought. The defendants vigorously denied any wrongdoing or liability with respect to the facts and claims that were asserted, or which could have been asserted, in the New York Actions. None of the defendants paid any consideration to the plaintiffs in connection with the dismissal. The plaintiffs agreed to dismiss the New York Actions in exchange for MCC’s agreement to pay $50,000 in attorneys’ fees and expenses to plaintiffs’ counsel.     

F- 25

Medley LLC

Notes to Condensed Consolidated Financial Statements

(Unaudited)

While management currently believes that the ultimate outcome of these proceedings will not have a material adverse effect on the Company’s consolidated financial position or overall trends in consolidated results of operations, litigation is subject to inherent uncertainties. The Company reviews relevant information with respect to litigation and regulatory matters on a quarterly and annual basis. The Company establishes liabilities for litigation and regulatory actions when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. For matters where a loss is believed to be reasonably possible, but not probable, no liability is established.

13. RELATED PARTY TRANSACTIONS

Substantially all of Medley’s revenue is earned through agreements with its non-consolidated funds for which it collects management and performance fees for providing asset management, advisory and other related services.

Administration Agreements

In January 2011 and April 2012, Medley entered into administration agreements with MCC (the “MCC Admin Agreement”) and Sierra (the “SIC Admin Agreement”), respectively, whereby, as part of its performance obligation to provide asset management, advisory and other related services, Medley agreed to provide administrative services necessary for the operations of MCC and Sierra. MCC and Sierra agreed to pay Medley for the costs and expenses incurred in providing such administrative services, including an allocable portion of Medley’s overhead expenses and an allocable portion of the cost of MCC and Sierra's officers and their respective staff.

Additionally, Medley has entered into administration agreements with other entities that it manages (the “Funds Admin Agreements”), whereby Medley agreed to provide administrative services necessary for the operations of these entities. These entities agreed to reimburse Medley for the costs and expenses incurred in providing such administrative services, including an allocable portion of Medley’s overhead expenses and an allocable portion of the cost of these other vehicles' officers and their respective staffs.

Medley records these administrative fees as revenue in the period when the performance obligation of providing such administrative services is satisfied and such revenue is included as a component of other revenues and fees on the consolidated statements of operations. Amounts due from these agreements are included as a component of other assets on the Company's consolidated balance sheets.

Total revenues recorded under these agreements during the three and nine months ended September 30, 2020 and 2019 are reflected in the table below:

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2020		2019		2020		2019
	(in thousands)
MCC Admin Agreement	$	465	$	822	$	1,747	$	2,437
SIC Admin Agreement	432		980		1,803		2,158
Fund Admin Agreements	295		273		876		732
Total administrative fees from related parties	$	1,192	$	2,075	$	4,426	$	5,327

Amounts due from related parties under these agreements are reflected in the table below.

	As of
	September 30, 2020		December 31, 2019
	(in thousands)
Amounts due from MCC under the MCC Admin Agreement	$	518	$	444
Amounts due from SIC under the SIC Admin Agreement	439		382
Amounts due from entities under the Fund Admin Agreements	295		247
Total administrative fees receivable	$	1,252	$	1,073

Other Amounts Due From Affiliates

F- 26

Medley LLC

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The Company also typically facilitates the payment of certain operating costs incurred by the funds that it manages. These costs are normally reimbursed by such funds and are included in due from affiliates, a component of other assets on the Company's condensed consolidated balance sheets. Amounts due from affiliates are reflected in the table below.

Additionally, in connection with the amended and restated limited liability agreement of Medley LLC, Medley LLC agreed to, at the sole discretion of the managing member, reimburse Medley Management Inc. for all expenses incurred, other than expenses incurred in connection with its income tax obligations. From time to time, the company may also advance funds to Medley to cover its operating needs. For the three and nine months ended September 30, 2020, the Company recorded reimbursable expenses of $1.8 million and $5.5 million, respectively, which were recorded as a component of general, administrative and other expenses on the consolidated statements of operations. As of September 30, 2020 and December 31, 2019, amounts due from Medley Management Inc. are included in the table below.

	As of
	September 30, 2020		December 31, 2019
	(in thousands)
Amounts due from MCC	$	53	$	209
Amounts due from SIC	116		578
Amounts due from long-dated private funds	95		801
Amounts due from separately managed accounts	134		199
Amounts due from Medley Management Inc.	1,431		906
Due from Affiliates	$	1,829	$	2,693

Amounts Due to Affiliates

Amounts due to affiliates reflects a clawback obligation of carried interest tax distributions that were received by the Company that would need to be paid back to the respective funds, if the funds were liquidated at fair value as of the end of the reporting period. The Company’s actual obligation, however, would not become payable or realized until the end of a fund’s life. Amounts due to affiliates at September 30, 2020 and December 31, 2019 were $7.2 million.

Organization Agreement

Pursuant to the organization agreement between Medley Management Inc. and Medley LLC, Medley Management Inc. may from time to time make grants of restricted stock units or other awards providing the holder with the contractual right to receive cash payments pursuant to an equity plan to employees, advisors or other persons, as defined, in respect of Medley LLC and its subsidiaries. These awards may entitle the holder thereof to receive dividends paid with respect to the shares of Class A common stock underlying such awards as if such holder were a holder of record of the underlying shares of Class A common stock. Medley LLC has agreed that it assumes any obligation to pay such dividend equivalent amounts to the holders of the respective awards. Additionally, pursuant to this agreement, the number of LLC Units held by Medley Management Inc., shall, at all times, equal the number of shares of Class A common stock outstanding and Medley LLC has agreed to issue additional LLC units equal to the number of shares of Medley Management Inc. issued pursuant to its equity plan.

Expense Support Agreement

On June 12, 2020, the Company and MCC entered into an Expense Support Agreement (the “ESA”) under which the Company agreed to cap the MCC management fee and all of MCC's other operating expenses (except interest expense, certain extraordinary strategic transaction expenses, and other expenses approved by the MCC Special Committee) at $667,000 per month (the “Cap”). Under the ESA, the Cap is effective from June 1, 2020 through December 31, 2020. During the three and nine months ended September 30, 2020, the Company recorded $0.4 million and $0.7 million, respectively, for ESA expenses under this agreement. The ESA expenses are presented as a reduction of management fees in the Company's condensed consolidated statement of operations and as a reduction to management fees receivable on the Company's condensed consolidated balance sheets.

Investment Management Agreement and Administration Agreement

In connection with the Expense Support Agreement, MCC extended the term of the amended and restated investment management agreement between the Company and MCC (the “Investment Management Agreement”) and the Administration Agreement through the quarter ended December 31, 2020. In connection with the foregoing, on June 12, 2020, the Board of MCC approved an amendment to the Investment Management Agreement and an amendment to the Administration Agreement to provide, in each case, that such agreement may be terminated by the Company or MCC with 30 days’ notice, rather than 60 days’ notice.

F- 27

Medley LLC

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Investments

Refer to Note 4, Investments, for information related to the Company's investments in related parties.

Exchange Agreement

Prior to the completion of the Company's IPO, Medley LLC's limited liability agreement was restated among other things, to modify its capital structure by reclassifying the interests held by its then existing owners (i.e. the members of Medley prior to the IPO) into the LLC Units. Medley’s existing owners also entered into an exchange agreement under which they (or certain permitted transferees thereof) have the right (subject to the terms of the exchange agreement as described therein), to exchange their LLC Units for shares of Medley Management Inc.’s Class A common stock on a one-for-one basis at fair value, subject to customary conversion rate adjustments for stock splits (including the Company's one-for-ten reverse stock split of Common Stock effected on October 30, 2020), stock dividends and reclassifications.

14. INCOME TAXES

Deferred income taxes reflect the net effect of temporary differences between the tax basis of an asset or liability and its reported amount on the Company’s condensed consolidated balance sheets. These temporary differences result in taxable or deductible amounts in future years. Due to the uncertain nature of the ultimate realization of its net deferred tax assets, the Company has established a full valuation allowance, as of September 30, 2020 and December 31, 2019, against the benefits of its deferred tax assets and will recognize these benefits only as reassessment demonstrates they are realizable. Ultimate realization is dependent upon several factors, among which is future earnings and reversing temporary differences. While the need for this valuation allowance is subject to periodic review, if the allowance is reduced, the tax benefits of the net deferred tax assets will be recorded in future operations as a reduction of the Company’s income tax expense. Excluding the impact of the full valuation allowance, the Company's net deferred tax assets were $3.2 million and $3.7 million as of September 30, 2020 and December 31, 2019, respectively. The Company's deferred tax assets consists primarily of temporary differences relating to certain accrued expenses, stock-based compensation, unrealized losses and a tax benefit relating to tax goodwill.

The Company’s effective tax rate was 2.5% and 1.5% for the three months ended September 30, 2020 and 2019, respectively and 2.2% and 1.4% for the nine months ended September 30, 2020 and 2019, respectively. During the three and nine months ended September 30, 2020, the Company's effective tax rate was impacted by a full valuation allowance being provided by the Company on its projected annual net deferred tax assets as well as losses allocated to non-controlling interests which are not subject to subject to federal, state and city corporate income taxes, as well as a true-up of a return to provision adjustment. During the three and nine months ended September 30, 2019, the Company's effective tax rate was impacted primarily by losses allocated to non-controlling interests which are not subject to subject to federal, state and city corporate income taxes, as well as discrete items associated with the vesting of restricted LLC Units and payment of dividend equivalent payments on restricted stock units.

Interest expense and penalties related to income tax matters are recognized as a component of the provision for income taxes and were not significant during the three and nine months ended September 30, 2020 and 2019. As of and during the three and nine months ended September 30, 2020 and 2019, there were no uncertain tax positions taken that were not more likely than not to be sustained.

15. COMPENSATION EXPENSE

Compensation generally includes salaries, bonuses, equity and profit sharing awards. Bonuses, equity and profit sharing awards are accrued over the service period to which they relate. Guaranteed payments made to the Company's senior professionals who are members of Medley LLC are recognized as compensation expense. The guaranteed payments to the Company’s Co-Chief Executive Officers are performance based and are periodically set subject to maximums based on the Company’s total assets under management. Such maximums aggregated to $0.8 million and $1.3 million during the three months ended September 30, 2020 and 2019, respectively. Such maximums aggregated to $2.3 million and $3.8 million during the nine months ended September 30, 2020 and 2019, respectively. During the three and nine months ended September 30, 2020, the Company's Co-Chief Executive Officers received guaranteed payments in the aggregate of $0.2 million and $0.8 million, respectively. Neither of the Company’s Co-Chief Executive Officers received any guaranteed payments during the three and nine months ended September 30, 2019.

F- 28

Medley LLC

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Retirement Plan

The Company sponsors a defined-contribution 401(K) retirement plan that covers all employees. Employees are eligible to participate in the plan immediately, and participants are 100% vested from the date of eligibility. The Company makes contributions to the plan of 3% of an employee’s eligible wages through June 30, 2020, up to a maximum limit as determined by the Internal Revenue Service. The Company also pays all administrative fees related to the plan. During the three and nine months ended September 30, 2020, the Company's accrued contributions to the plan were less than $0.1 million and $0.3 million, respectively. During the three and nine months ended September 30, 2019, the Company's accrued contributions to the plan were less than $0.1 million and $0.4 million, respectively. As of September 30, 2020 and December 31, 2019 the Company's outstanding liability to the plan was $0.3 million and $0.4 million, respectively.

Stock-Based Compensation

In connection with the IPO of Medley Management Inc., Medley Management Inc. and Medley LLC adopted the Medley Management Inc. 2014 Omnibus Incentive Plan (as amended, the "Plan"). The purpose of the Plan is to provide a means through which the Company may attract and retain key personnel and to provide a means whereby directors, officers, employees, consultants and advisors (and prospective directors, officers, employees, consultants and advisors) of the Company can acquire and maintain an equity interest in the Company, Medley Management Inc. or be paid incentive compensation, including incentive compensation measured by reference to the value of Medley Management Inc.’s Class A common stock or Medley LLC’s unit interests, thereby strengthening their commitment to the welfare of the Company and aligning their interests with those of the Medley Management Inc.'s stockholders. The Plan provides for the issuance of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”), restricted LLC Units of Medley LLC, stock bonuses, other stock-based awards and cash awards. As the grant of these awards are primarily for the benefit of the employees of Medley LLC, stock compensation is recognized in Medley LLC's separate consolidated financial statements through a corresponding credit to members' equity (deficit), representing a capital contribution by Medley Management Inc.

The fair value of RSUs granted under the Plan is determined to be the fair value of the underlying shares on the date of grant. The fair value of restricted LLC Units of Medley LLC is based on the public share price of MDLY at date of grant, adjusted for different distribution rights. The aggregate fair value of these awards is charged to compensation expense on a straight-line basis over the vesting period, which is generally up to five years, with the exception of certain restricted LLC Units that will only vest upon certain conditions such as death, disability, termination without cause or change of control. For these awards, compensation expense is recognized when such condition is met.

During the three months ended September 30, 2020 and 2019, stock-based compensation was $1.1 million and $2.0 million, respectively. Stock-based compensation for the nine months ended September 30, 2020 and 2019 was $2.9 million and $5.2 million, respectively.

16. REDEEMABLE NON-CONTROLLING INTERESTS

Changes in redeemable non-controlling interests during the nine months ended September 30, 2020 and 2019 is reflected in the table below (in thousands).

	For the Nine Months Ended September 30,
	2020			2019
Balance at beginning of the period	$	(748	)	$	23,186
Net loss attributable to redeemable non-controlling interests in consolidated subsidiaries	(4		)	(321		)
Distributions	—			(2,362		)
Fair value adjustment to redeemable non-controlling interests	752			—
Balance at end of the period	$	—		$	20,503

As of January 1, 2020, the Company's redeemable non-controlling interests balance was comprised of one minority interest holder's membership units in STRF Advisors LLC. As of January 1, 2019, in addition to this minority interest holder, the Company's redeemable non-controlling interests balance was also comprised of DB MED Investor I LLC and DB MED Investor II LLC (‘DB Med Investors’’) preferred interest in a joint venture, as further described below.

Redeemable Non-Controlling Interest in STRF Advisors LLC

In October 2016, the Company executed an operating agreement for STRF Advisors LLC which provided the Company with

F- 29

Medley LLC

Notes to Condensed Consolidated Financial Statements

(Unaudited)

the right to redeem membership units owned by the minority interest holder, Strategic Capital Advisory Services, LLC. The Company’s redemption right is triggered by the termination of the dealer manager agreement between STRF and SC Distributors LLC, an affiliate of the minority interest holder. As a result of this redemption feature, the non-controlling interest in STRF Advisors LLC was classified as a component of redeemable non-controlling interests in the mezzanine section of the Company's condensed consolidated balance sheets.

On February 5, 2020, a termination event occurred and as a result, the Company reclassified STRF Advisors LLC s minority interest balance from redeemable non-controlling interests in the mezzanine section of its condensed consolidated balance sheet to due to former minority interest holder, net at its then current redemption value. The redemption value of the non-controlling interest was determined to be zero and was adjusted through a $0.1 million charge to members' deficit. There were no changes in its redemption value through September 30, 2020.

During the nine months ended September 30, 2020, net losses allocated to this redeemable non-controlling interest were less than $0.1 million. There were no net losses allocated to this redeemable non-controlling interest during the three months ended September 30, 2020. During each of the three and nine months ended September 30, 2019, net losses allocated to this redeemable non-controlling interest were less than $0.1 million. As of September 30, 2020, the balance of this redeemable non-controlling interest was zero.

Redeemable Non-Controlling Interests in Joint Venture

On June 3, 2016, the Company entered into a Master Investment Agreement with DB Med Investors to invest up to $50.0 million in new and existing Medley managed funds (the ‘‘Joint Venture’’). The Company agreed to contribute up to $10.0 million and an interest in STRF Advisors LLC, the investment advisor to STRF, in exchange for common equity interests in the Joint Venture. On June 6, 2017, the Company entered into an amendment to its Master Investment Agreement with the Investors, which provided for, among other things, an increase in the Company’s capital contribution to up to $13.8 million and extended the term of the Joint Venture from seven to ten years. DB Med Investors agreed to invest up to $40.0 million in exchange for preferred equity interests in the Joint Venture. Total contributions to the Joint Venture amounted to $53.8 million and were used to purchase $51.8 million of MCC shares on the open market and seed fund $2.0 million to STRF. On account of the preferred equity interests, DB Med Investors was entitled to receive an 8% preferred distribution, 15% of the Joint Venture’s profits, and all of the profits from the contributed interest in STRF Advisors LLC. The Company could make a capital contribution to fund the 8% preferred distribution but was limited to one contribution in any rolling twelve month period without the prior written consent of DB Med Investors. Medley had the option, subject to certain conditions, to cause the Joint Venture to redeem the DB Med Investors’ interests in exchange for repayment of the outstanding investment amount at the time of redemption, plus certain other considerations. DB Med Investors had the right, after ten years, to redeem their interests in the Joint Venture. DB Med Investors also had the right upon the occurrence of certain events (the "Put Option Trigger Event") to redeem their interests in the Joint Venture. Upon a Put Option Trigger Event DB Med Investors have the right to exercise a put option in which they would be entitled to put their preferred interests back to the Joint Venture. The Joint Venture can satisfy the put in cash or in kind in an amount equal to the amount necessary to satisfy the Fund Share Interest Redemption Price, as defined.

Total contributions to the Joint Venture amounted to $53.8 million through September 30, 2019 and were used to purchase $51.8 million of MCC shares on the open market and seed fund $2.0 million to STRF. During the three months ended September 30, 2019, income allocated to this non-controlling interest was $1.7 million. During the nine months ended September 30, 2019, losses allocated to this non-controlling interest was $0.3 million. Distributions paid to this non-controlling interest during the three and nine months ending September 30, 2019 were $0.8 million and $2.4 million, respectively.

In October 2019, the Joint Venture did not make the 8% preferred distribution resulting in a Put Option Trigger Event. On October 22, 2019, Medley LLC, Medley Seed Funding I LLC (“Seed Funding I”), Medley Seed Funding II LLC (“Seed Funding II”), and Medley Seed Funding III LLC (“Seed Funding III”) received notice from DB Med Investors that they exercised their put option rights under the amended Master Investment Agreement (the “Agreement”). In connection with the exercise of DB Med Investors put option right, the Company reclassified the Joint Venture's minority interest balance from redeemable non-controlling interests in the mezzanine section of its consolidated balance sheet to due to DB Med Investors (Note 11), a component of accounts payable, accrued expenses and other liabilities, at its then fair value. As a result of this reclassification, there was no redeemable non-controlling interest balance at December 31, 2019 or periods ended thereafter.

17. MARKET AND OTHER RISK FACTORS

Due to the nature of the Medley funds’ investment strategy, their portfolio of investments has significant market and credit risk. As a result, the Company is subject to market and other risk factors, including, but not limited to the following:

COVID-19

On March 11, 2020, the World Health Organization declared the spread of COVID-19 a pandemic. In response, on March 27, 2020 the President of the United States signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act into law and

F- 30

Medley LLC

Notes to Condensed Consolidated Financial Statements

(Unaudited)

the United States Congress continues to discuss additional stimulus measures. Several governments in jurisdictions that encompass the Company’s offices and operations have implemented extended strict social distancing measures. In response, the Company has implemented remote work arrangements for virtually all of its employees and restricted business travel. These arrangements have not materially affected our ability to maintain and conduct our business operations, including the operation of financial reporting systems, internal controls over financial reporting, and disclosure controls and procedures. While the COVID-19 pandemic has adversely affected the global economy, the nature and extent of COVID-19’s effect on the Company’s operational and financial performance will depend on future developments, including the course of the pandemic, the success of governments in relaxing social distancing measures and restarting economic activity, the efficacy of monetary and fiscal measures taken or that may be taken in the future, and the potential for structural damage to the economy due to the sharp drop in aggregate demand and, particularly in the U.S., a high level of unemployment, all of which are uncertain and difficult to predict considering the rapidly evolving landscape.

Market Risk

The market price of investments may significantly fluctuate during the period of investment. Investments may decline in value due to factors affecting securities markets generally or particular industries represented in the securities markets. The value of an investment may decline due to general market conditions that are not specifically related to such investment, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or currency rates or adverse investor sentiment generally. They may also decline due to factors that affect a particular industry or industries, such as labor shortages or increased production costs and competitive conditions within an industry. 

Credit Risk

There are no restrictions on the credit quality of the investments the Company intends to make. Investments may be deemed by nationally recognized rating agencies to have substantial vulnerability to default in payment of interest and/or principal. Some investments may have low-quality ratings or be unrated. Lower rated and unrated investments have major risk exposure to adverse conditions and are considered to be predominantly speculative. Generally, such investments offer a higher return potential than higher rated investments, but involve greater volatility of price and greater risk of loss of income and principal.

In general, the ratings of nationally recognized rating organizations represent the opinions of agencies as to the quality of the securities they rate. Such ratings, however, are relative and subjective; they are not absolute standards of quality and do not evaluate the market value risk of the relevant securities. It is also possible that a rating agency might not change its rating of a particular issue on a timely basis to reflect subsequent events. The Company may use these ratings as initial criteria for the selection of portfolio assets for the Company but is not required to utilize them.

Limited Liquidity of Investments

The funds managed by the Company invest and intend to continue to invest in investments that may not be readily marketable. Illiquid investments may trade at a discount from comparable, more liquid investments and, at times there may be no market at all for such investments. Subordinate investments may be less marketable, or in some instances illiquid, because of the absence of registration under federal securities laws, contractual restrictions on transfer, the small size of the market or the small size of the issue (relative to issues of comparable interests). As a result, the funds managed by the Company may encounter difficulty in selling its investments or may, if required to liquidate investments to satisfy redemption requests of its investors or debt service obligations, be compelled to sell such investments at less than fair value. 

Counterparty Risk

Some of the markets in which the Company, on behalf of its underlying funds, may affect its transactions are “over-the-counter” or “interdealer” markets. The participants in such markets are typically not subject to credit evaluation and regulatory oversight, unlike members of exchange-based markets. This exposes the Company to the risk that a counterparty will not settle a transaction in accordance with its terms and conditions because of a dispute over the terms of the applicable contract (whether or not such dispute is bona fide) or because of a credit or liquidity problem, causing the Company to suffer loss. Such “counterparty risk” is accentuated for contracts with longer maturities where events may intervene to prevent settlement, or where the Company has concentrated its transactions with a single or small group of counterparties. 

18. SUBSEQUENT EVENTS

Management has evaluated subsequent events through the date of issuance of these condensed consolidated financial statements included herein. There have been no subsequent events that occurred during such period that would require disclosure in this Form 10-Q, other than those events disclosed elsewhere in the condensed consolidated financial statements, or would be required to be recognized in the condensed consolidated financial statements as of and for the nine months ended September 30, 2020.

F- 31

Medley LLC

Notes to Condensed Consolidated Financial Statements

(Unaudited)

F- 32

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Form 10-Q and our financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

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Overview

We are an alternative asset management firm offering yield solutions to retail and institutional investors. We focus on credit-related investment strategies, primarily originating senior secured loans to private middle market companies in the U.S. that have revenues between $50 million and $1 billion. We generally hold these loans to maturity. Our national direct origination franchise provides capital to the middle market in the U.S. Over the past 18 years, we have provided capital to over 400 companies across 35 industries in North America.

We manage two permanent capital vehicles, which are BDCs, as well as long-dated private funds and SMAs, focusing on senior secured credit.

• Permanent capital vehicles: MCC and SIC have a total AUM of $1.1 billion as of September 30, 2020.

• Long-dated private funds and SMAs: MOF II, MOF III, MOF III Offshore, MCOF, Aspect, Aspect B, MCC JV, SIC JV and SMAs, have a total AUM of $2.3 billion as of September 30, 2020.

As of September 30, 2020, we had $3.4 billion of AUM, $1.1 billion in permanent capital vehicles and $2.3 billion in long-dated private funds and SMAs. Our AUM as of September 30, 2020 declined by 20% year-over-year, which was driven primarily by distributions and changes in fund values. Our compounded annual AUM growth rate from December 31, 2010 through September 30, 2020 was 13% and our compounded annual Fee Earning AUM growth rate was 6%, both of which have been driven in large part by the growth in our permanent capital vehicles. As of September 30, 2020, we had $1.7 billion of Fee Earning AUM which consisted of $1.0 billion in permanent capital vehicles and $0.7 billion in long-dated private funds and SMAs. Our Fee Earning AUM as of September 30, 2020 declined by 28% year-over-year which was driven primarily by changes in fund values and capital reductions resulting from debt repayments and distributions. Typically, the investment periods of our institutional commitments range from 18 to 24 months and we expect our Fee Earning AUM to increase as capital commitments included in AUM are invested.

In general, our institutional investors do not have the right to withdraw capital commitments and, to date, we have not experienced any withdrawals of capital commitments. For a description of the risk factor associated with capital commitments, see “Risk Factors – Third-party investors in our private funds may not satisfy their contractual obligation to fund capital calls when requested, which could adversely affect a fund’s operations and performance” included in our Annual Report on Form 10-K for the year ended December 31, 2019.

Direct origination, careful structuring and active monitoring of the loan portfolios we manage are important success factors in our business, which can be adversely affected by difficult market and political conditions. Since our inception in 2006, we have adhered to a disciplined investment process that employs these principles with the goal of delivering strong risk-adjusted investment returns while protecting investor capital. We believe that our ability to directly originate, structure and lead deals enables us to achieve these goals. In addition, the loans we manage generally have a contractual maturity of between three and seven years and are typically floating rate, which we believe positions our business well for rising interest rates.

The significant majority of our revenue is derived from management fees, which include base management fees earned on all of our investment products, as well as Part I incentive fees earned from our permanent capital vehicles and certain of our long-dated private funds. Our base management fees are generally calculated based upon fee earning assets and paid quarterly in cash. Our Part I incentive fees are typically calculated based upon net investment income, subject to a hurdle rate, and are paid quarterly in cash.

We also may earn carried interest from our long-dated funds and contractual performance fees from our SMAs. Typically, these fees are 15.0% to 20.0% of the total return above a hurdle rate. Carried interest represent fees that are a capital allocation to the general partner or investment manager, are accrued quarterly and paid after the return of all invested capital and an amount sufficient to achieve the hurdle rate of return.

We also may receive incentive fees related to realized capital gains in our permanent capital vehicles and certain of our long-dated private funds that we refer to as Part II incentive fees. Part II incentive fees are payable annually and are calculated at the end of each applicable year by subtracting the sum of cumulative realized capital losses and unrealized capital depreciation from cumulative aggregate realized capital gains. If the amount calculated is positive, then the Part II incentive fee for such year is equal to 20% of such amount, less the aggregate amount of Part II incentive fees paid in all prior years. If such amount is negative, then no Part II incentive fee will be payable for such year. As our investment strategy is focused on generating yield from senior secured credit, historically we have not generated Part II incentive fees.

For the three and nine months ended September 30, 2020, 75% and 80%, respectively, of our revenues were generated from management fees.

Our primary expenses are compensation to our employees and general, administrative and other expenses. Compensation includes salaries, discretionary bonuses, stock-based compensation, performance based compensation and benefits paid and payable to our employees. General and administrative expenses include costs primarily related to professional services, office rent and

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related expenses, depreciation and amortization, travel and related expenses, information technology, communication and information services, placement fees and third-party marketing expenses and other general operating items.

Registered Public Offering of Medley LLC Notes

On August 9, 2016, Medley LLC completed a registered public offering of an aggregate principal amount of $25.0 million of 6.875% senior notes due 2026 (the "2026 Notes") at a public offering price of 100% of the principal amount. On October 18, 2016, Medley LLC completed a public offering of an additional $28.6 million in aggregate principal amount of 2026 Notes at a public offering price of $24.45 for each $25.00 principal amount of notes. The notes mature on August 15, 2026 and interest is payable quarterly. The notes will be redeemable in whole or in part at our option on or after August 15, 2019 at a redemption price of 100% of the aggregate principal amount plus accrued and unpaid interest payments. We used the net proceeds from the offering to repay a portion of the outstanding indebtedness under the Company's Term Loan Facility. The 2026 Notes are listed on the New York Stock Exchange and trade thereon under the trading symbol “MDLX.”

On January 18, 2017, Medley LLC completed a registered public offering of an aggregate principal amount of $34.5 million of 7.25% senior notes due 2024 (the “2024 Notes”) at a public offering price of 100% of the principal amount. On February 22, 2017, Medley LLC completed a public offering of an additional $34.5 million in aggregate principal amount of 2024 Notes at a public offering price of $25.25 for each $25.00 principal amount of notes. The 2024 Notes mature on January 30, 2024 and interest is payable quarterly commencing on April 30, 2017. The notes will be redeemable in whole or in part at our option on or after January 30, 2020 at a redemption price of 100% of the aggregate principal amount plus accrued and unpaid interest payments. We used the net proceeds from the offering to repay the remaining outstanding indebtedness under the Term Loan Facility.

Reorganization and Initial Public Offering

In connection with the IPO, Medley Management Inc. issued 100 shares of Class B common stock to Medley Group LLC (“Medley Group”), an entity wholly owned by the pre-IPO members of Medley LLC. For so long as the pre-IPO members and then-current Medley personnel hold at least 10% of the aggregate number of shares of Class A common stock and LLC Units (excluding those LLC Units held by Medley Management Inc.) then outstanding, the Class B common stock entitles Medley Group to a number of votes that is equal to 10 times the aggregate number of LLC Units held by all non-managing members of Medley LLC that do not themselves hold shares of Class B common stock and entitle each other holder of Class B common stock, without regard to the number of shares of Class B common stock held by such other holder, to a number of votes that is equal to 10 times the number of membership units held by such holder.

In connection with the IPO, Medley LLC amended and restated its limited liability agreement to modify its capital structure by reclassifying the 233,333 interests, adjusted for the reverse split described below, held by the pre-IPO members into a single new class of units. The pre-IPO members also entered into an exchange agreement under which they (or certain permitted transferees thereof) have the right, subject to the terms of the exchange agreement, to exchange their LLC Units for shares of Medley Management Inc.’s Class A common stock on a one-for-one basis, subject to customary conversion rate adjustments for stock splits, stock dividends and reclassifications. In addition, pursuant to the amended and restated limited liability agreement, Medley Management Inc. became the sole managing member of Medley LLC. Medley Management Inc. is controlled by the pre-IPO owners who are subject to limited exceptions, prohibited from transferring any LLC Units held by them or any shares of Class A common stock received upon exchange of such LLC Units, until the third anniversary of the date of the closing of the IPO of Medley Management Inc. without the consent of the managing member. Thereafter and prior to the fourth and fifth anniversaries of the closing of the IPO of Medley Management Inc., such holders may not transfer more than 33 1/3% and 66 2/3%, respectively, of the number of LLC Units held by them, together with the number of any shares of Class A common stock received by them upon exchange therefore, without the consent of the managing member.

Reverse Split of LLC Units

On October 30, 2020, MDLY effected a reverse stock split at a ratio of 1-for-10 of all classes of its common stock.  As a result of the reverse stock split, each ten shares of MDLY's outstanding common stock were combined into one share of the respective class of common stock without any change to the par value per share. In accordance with the organization agreement entered into by MDLY and Medley LLC in connection with the IPO of MDLY, our LLC Units were also adjusted at a ratio of 1-for-10 simultaneously with the reverse stock split of MDLY common stock.

As a result of this reverse stock split, all references in these report on Form 10-Q to MDLY common share amounts and the our LLC Units reflect the effect of the reverse stock split.

Our Structure

Medley LLC is a partially owned subsidiary of Medley Management Inc., a holding company whose sole material asset is its a controlling equity interest in Medley LLC. Medley Management Inc. operates and controls all of the business and affairs and consolidates the financial results of Medley LLC and its subsidiaries. Medley Management Inc. owns 100% of the voting interests in Medley LLC and 19.2% of the issued and outstanding LLC Units of Medley LLC. The remaining LLC Units (80.8%) are held

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by Brook Taube, Seth Taube and other members of senior management ("Senior Management Owners"). The LLC Units do not have voting rights. Medley Management Inc. and the Senior Management Owners have also entered into an exchange agreement under which the Senior Management (or certain permitted transferees) have the right (subject to the terms of the exchange agreement), to exchange their equity interest in Medley LLC for shares of Medley Management Inc.'s Class A common stock on a one-for-one basis, subject to customary conversion rate adjustments for stock splits, stock dividends and reclassifications.

Medley Group LLC, an entity wholly-owned by the pre-IPO owners, holds all 10 issued and outstanding shares of Medley Management Inc.'s Class B common stock. For so long as the pre-IPO owners and then-current Medley personnel hold at least 10% of the aggregate number of shares of Class A common stock and LLC Units (excluding those LLC Units held by Medley Management Inc.), which we refer to as the “Substantial Ownership Requirement,” the Class B common stock entitles Medley Group LLC, without regard to the number of shares of Class B common stock held by it, to a number of votes that is equal to 10 times the aggregate number of LLC Units held by all non-managing members of Medley LLC that do not themselves hold shares of Class B common stock and entitle each other holder of Class B common stock, without regard to the number of shares of Class B common stock held by such other holder, to a number of votes that is equal to 10 times the number of LLC Units held by such holder. For purposes of calculating the Substantial Ownership Requirement, shares of Class A common stock deliverable to the pre-IPO owners and then-current Medley personnel pursuant to outstanding equity awards will be deemed then outstanding and shares of Class A common stock and LLC Units held by any estate, trust, partnership or limited liability company or other similar entity of which any pre-IPO owner or then-current Medley personnel, or any immediate family member thereof, is a trustee, partner, member or similar party will be considered held by such pre-IPO owner or other then-current Medley personnel. From and after the time that the Substantial Ownership Requirement is no longer satisfied, the Class B common stock will entitle Medley Group LLC, without regard to the number of shares of Class B common stock held by it, to a number of votes that is equal to the aggregate number of LLC Units held by all non-managing members of Medley LLC that do not themselves hold shares of Class B common stock and entitle each other holder of Class B common stock, without regard to the number of shares of Class B common stock held by such other holder, to a number of votes that is equal to the number of LLC Units held by such holder. At the completion of the IPO of Medley Management Inc., the pre-IPO owners were comprised of all of the non-managing members of Medley LLC. However, Medley LLC may in the future admit additional non-managing members that would not constitute pre-IPO owners. If at any time the ratio at which LLC Units are exchangeable for shares of Medley Management Inc. Class A common stock changes from one-for-one as set forth in the Exchange Agreement, the number of votes to which Class B common stockholders are entitled will be adjusted accordingly. Holders of shares of our Class B common stock will vote together with holders of our Class A common stock as a single class on all matters on which stockholders are entitled to vote generally, except as otherwise required by law.

Holders of equity interest in Medley LLC (other than Medley Management Inc) are, subject to limited exceptions, prohibited from transferring any LLC Units held by them as of September 23, 2014 (the date of consummation of the IPO of Medley Management Inc.), or any shares of Medley Management Inc.'s Class A common stock received upon exchange of such LLC Units, until September 23, 2017, without Medley Management Inc.'s consent. Thereafter and prior to September 23, 2018 and September 23, 2019, such holders may not transfer more than 33 1/3% and 66 2/3%, respectively, of any shares of Medley LLC's equity interest held by them as of September 23, 2014 (the date of consummation of Medley Management Inc.'s IPO), together with the number of any shares of Medley Management Inc.'s Class A common stock received by them upon exchange therefor, without the consent of Medley Management Inc. While this agreement could be amended or waived by Medley Management Inc., the holders of equity interests in Medley LLC (other than Medley Management Inc.) have advised us that they do not intend to seek any waivers of these restrictions.

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The diagram below depicts our organizational structure (excluding those operating subsidiaries with no material operations or assets) as of November 12, 2020:

(1) The Class B common stock provides Medley Group LLC with a number of votes that is equal to 10 times the aggregate number of LLC Units held by all non-managing members of Medley LLC. From and after the time that the Substantial Ownership Requirement is no longer satisfied, the Class B common stock will provide Medley Group LLC with a number of votes that is equal to the aggregate number of LLC Units held by all non-managing members of Medley LLC that do not themselves hold shares of Class B common stock.

(2) If our pre-IPO owners exchanged all of their vested and unvested LLC Units for shares of Class A common stock, they would hold 80.8% of the outstanding shares of Class A common stock, entitling them to an equivalent percentage of economic interests and voting power in Medley Management Inc., Medley Group LLC would hold no voting power or economic interests in Medley Management Inc. and Medley Management Inc. would hold 100% of outstanding LLC Units and 100% of the voting power in Medley LLC.

(3) Medley LLC holds 96.5% of the Class B economic interests in Medley (Aspect) Management LLC.

(4) Medley LLC holds 95.5% of the Class B economic interests in MCOF Management LLC.

(5) Medley GP Holdings LLC holds 95.5% of the Class B economic interests in MCOF GP LLC.

(6) Certain employees, former employees and former members of Medley LLC hold approximately 40.3% of the limited liability company interests in MOF II GP LLC, the entity that serves as general partner of MOF II, entitling the holders to share the carried interest earned from MOF II.

(7) Medley GP Holdings LLC holds 96.5% of the Class B economic interests in Medley (Aspect) GP LLC.

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(8) Certain employees and former employees of Medley LLC hold approximately 70.1% of the limited liability company interests in Medley Caddo Investors LLC, entitling the holders to share the carried earned from Caddo Investors Holdings I LLC.

(9) Certain employees and former employees of Medley LLC hold approximately 69.9% of the limited liability company interests in Medley Real D Investors LLC, entitling the holders to share the carried earned from Medley Real D (Annuity) LLC.

(10) Certain employees and former employees of Medley LLC hold approximately 70.2% of the limited liability company interests in Medley Avantor Investors LLC, entitling the holders to share the carried earned from Medley Tactical Opportunities LLC.

(11) Certain employees and former employees of Medley LLC hold approximately 70.1% of the limited liability company interests in Medley Cloverleaf Investors LLC, entitling the holders to share the carried earned from Medley Chiller Holdings LLC.

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Termination of Agreement and Plan of Merger

On July 29, 2019, we entered into the Amended and Restated Agreement and Plan of Merger, dated as of July 29, 2019 (the “Amended MDLY Merger Agreement”), by and among the Company, Sierra Income Corporation (“Sierra”), and Sierra Management, Inc., a wholly owned subsidiary of the Company (“Merger Sub”), pursuant to which we would have, on the terms and subject to the conditions set forth in the Amended MDLY Merger Agreement, merged with and into Merger Sub, with Merger Sub as the surviving company in the merger (the “MDLY Merger”). In addition, on July 29, 2019, Medley Capital Corporation (“MCC”) and Sierra entered into the Amended and Restated Agreement and Plan of Merger, dated as of July 29, 2019 (the “Amended MCC Merger Agreement”), by and between MCC and Sierra, pursuant to which MCC would have, on the terms and subject to the conditions set forth in the Amended MCC Merger Agreement, merged with and into Sierra, with Sierra as the surviving company in the merger (the “MCC Merger”).

On May 1, 2020, we received a written notice of termination from Sierra in accordance with Sections 9.1 and 10.2 of the Amended MDLY Merger Agreement. Section 9.1(c) of the Amended MDLY Merger Agreement permits both the Company and Sierra to terminate the Amended MDLY Merger Agreement if the MDLY Merger has not been consummated on or before March 31, 2020 (the “Outside Date”).

As a result, the Amended MDLY Merger Agreement had been terminated effective as of May 1, 2020. Sierra terminated the Amended MDLY Merger Agreement effective as of May 1, 2020 as the Outside Date had passed and the MDLY Merger had not been consummated. Representatives of Sierra informed the Company that in determining to terminate the Amended MDLY Merger Agreement, Sierra considered a number of factors, including, among other factors, changes in the relative valuation of the Company and Sierra, the changed circumstances and the unpredictable economic conditions resulting from the global health crisis caused by the coronavirus (COVID-19) pandemic, and the uncertainty regarding the parties’ ability to satisfy the conditions to closing the MDLY Merger in a timely manner.

In addition, on May 1, 2020, MCC received a notice of termination from Sierra of the Amended MCC Merger Agreement. Under the Amended MCC Merger Agreement, either party may have, subject to certain conditions, terminated the Amended MCC Merger Agreement if the MCC Merger was not consummated by March 31, 2020. Sierra elected to do so on May 1, 2020. Representatives of Sierra informed MCC that in determining to terminate the Amended MCC Merger Agreement, Sierra considered a number of factors, including, among other factors, changes in the relative valuation of MCC and Sierra, the changed circumstances and the unpredictable economic conditions resulting from the global health crisis caused by the COVID-19 pandemic, and the uncertainty regarding the parties’ ability to satisfy the conditions to closing the MCC Merger in a timely manner.

Transaction expenses related to the MDLY Merger are included in general, administrative and other expenses and primarily consist of professional fees. Such expenses amounted to $1.0 million and $2.1 million for the three months ended September 30, 2020 and 2019, respectively, and $3.5 million for each of the nine months ended September 30, 2020 and 2019.

Trends Affecting Our Business

Our results of operations, including the fair value of our AUM, are affected by a variety of factors, including conditions in the global financial markets as well as economic and political environments, particularly in the U.S.

During the three and nine months ended September 30, 2020, the domestic credit and equity markets exhibited significant volatility, primarily due to the impact of COVID-19. Across the lending spectrum, year over year loan issuances decreased, driven primarily by reduced merger and acquisition activity and increased volatility and uncertainty due to impacts from COVID-19. As our platform provides us the ability to lend across the capital structure and at varying interest rates, our firm may have access to a larger borrower subset during periods of heightened volatility.

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In addition to these macroeconomic trends and market factors, our future performance is dependent on our ability to attract new capital. We believe the following factors will influence our future performance:

• The extent to which investors favor directly originated private credit investments. Our ability to attract additional capital is dependent on investors’ views of directly originated private credit investments relative to traditional assets. We believe fundraising efforts will continue to be impacted by certain fundamental asset management trends that include: (i) the importance of directly originated private credit investment strategies for institutional investors; (ii) demand for directly originated private credit investments from retail investors; (iii) recognition by the consultant channel, which serves endowment and pension fund investors, that directly originated private credit is an important component of asset allocation; (iv) increasing demand from insurance companies seeking alternatives to investing in the liquid credit markets; and (v) de-leveraging of the global banking system, bank consolidation and increased bank regulatory requirements. 

• Our ability to generate strong, stable returns and retain investor capital throughout market cycles. The capital we are able to attract and retain drives the growth of our AUM, fee earning AUM and management fees. We believe we are positioned to invest through market cycles given our AUM is in either permanent capital vehicles or long-dated private funds and SMAs.

• Our ability to source investments with attractive risk-adjusted returns. Our ability to grow our revenue is dependent on our continued ability to source attractive investments and deploy the capital that we have raised. We believe that the current economic environment, while uncertain, will ultimately provide attractive investment opportunities. Our ability to identify attractive investments and execute on those investments is dependent on a number of factors, including the general macroeconomic environment, valuation, size and the liquidity available in our investment vehicles. A significant decrease in the quality or quantity of investment opportunities in the directly originated private credit market, a substantial increase in corporate default rates, an increase in competition from new entrants providing capital to the private debt market and a decrease in recovery rates of directly originated private credit could adversely affect our ability to source investments with attractive risk-adjusted returns.

• The attractiveness of our product offering to investors. We expect defined contribution plans, retail investors, public institutional investors, pension funds, endowments, sovereign wealth funds and insurance companies to maintain or increase exposure to directly originated private credit investment products to seek differentiated returns and current yield. Our permanent capital vehicles and long-dated private funds and SMAs may benefit from this demand by offering institutional and retail investors the ability to invest in our private credit investment strategy. We believe that the breadth, diversity and number of investment vehicles we offer allow us to maximize our reach with investors.

• The strength of our investment process, operating platform and client servicing capabilities. Following the 2008 financial crisis, investors in alternative investments, including those managed by us, have heightened their focus on matters such as manager due diligence, reporting transparency and compliance infrastructure, and we expect this to continue during and post the COVID-19 pandemic. Since inception, we have invested in our investment monitoring systems, compliance and enterprise risk management systems to proactively address investor expectations and the evolving regulatory landscape. We believe these investments in operating infrastructure will continue to support our growth in AUM. 

Components of Our Results of Operations

Revenues

Management Fees. Management fees include both base management fees as well as Part I incentive fees.

• Base Management Fees. Base management fees are generally based on a defined percentage of (i) average or total gross assets, including assets acquired with leverage, (ii) total commitments, (iii) net invested capital, (iv) NAV or (v) lower of cost or market value of a fund’s portfolio investments. These fees are calculated quarterly and are paid in cash in advance or in arrears. Base management fees are recognized as revenue in the period advisory services are rendered, subject to our assessment of collectability.

In addition, we also receive non asset-based management fees that may include special fees such as origination fees, transaction fees and similar fees paid to us in connection with portfolio investments of our funds. These fees are specific to particular transactions and the contractual terms of the portfolio investments, and are recognized when earned.

• Part I Incentive Fees. We also include Part I incentive fees that we receive from our permanent capital vehicles and certain of our long-dated private funds in management fees. Part I incentive fees are paid quarterly, in cash, and are driven primarily by net interest income on senior secured loans. As it relates to MCC, these fees are subject to netting against realized and unrealized losses. We are primarily an asset manager of yield-oriented products and our incentive

7

fees are primarily derived from spread income rather than trading or capital gains. In addition, we also carefully manage interest rate risk. We are generally positioned to benefit from a raising rate environment, which should benefit fees paid to us from our vehicles and funds.

• Part II Incentive Fees. For our permanent capital vehicles and certain of our long-dated private funds, Part II incentive fees generally represent 20.0% of each fund’s cumulative realized capital gains (net of realized capital losses and unrealized capital depreciation). We have not received these fees historically, and do not expect such fees to be material in the future given our focus on senior secured lending.

Performance Fees. Performance fees are contractual fees which do not represent a capital allocation to the general partner or investment manager that are earned based on the performance of certain funds, typically our separately managed accounts. Performance fees are earned based upon fund performance during the period, subject to the achievement of minimum return levels in accordance with the respective terms set out in each fund’s investment management agreement. We recognize these contractual based performance fees as revenue when it is probable that a significant reversal of such fees will not occur in the future.

The timing and amount of performance fees generated by our funds is uncertain. If we were to have a realization event in a particular quarter or year, it may have a significant impact on our results for that particular quarter or year that may not be replicated in subsequent periods. Refer to “Risk Factors — Risks Related to Our Business and Industry” included in our Annual Report on Form 10-K for the year ended December 31, 2019.

Other Revenues and Fees. We provide administrative services to certain of our vehicles that are reported as other revenues and fees. Such fees are recognized as revenue in the period that administrative services are rendered. These fees are generally based on expense reimbursements for the portion of overhead and other expenses incurred by certain professionals directly attributable to each respective fund. We also act as the administrative agent on certain deals for which we may earn loan administration fees and transaction fees. We may also earn consulting fees for providing non-advisory services related to our managed funds. Additionally, this line item includes reimbursable origination and deal expenses as well as reimbursable entity formation and organizational expenses.

Carried Interest. Carried interest are performance based fees that represent a capital allocation of income to the general partner or investment manager. Carried interest are allocated to us based on cumulative fund performance to date, subject to the achievement of minimum return levels in accordance with the respective terms set out in each fund’s governing documents and are accounted for under the equity method of accounting. Accordingly, these performance fees are reflected as carried interest within investment income on our consolidated statements of operations and balances due for such fees are included as a part of equity method investments within Investments, at fair value on our consolidated balance sheets.

We record carried interest based upon an assumed liquidation of that fund's net assets as of the reporting date, regardless of whether such amounts have been realized. For any given period, carried interest on our consolidated statements of operations may include reversals of previously recognized carried interest due to a decrease in the value of a particular fund that results in a decrease of cumulative fees earned to date. Since fund return hurdles are cumulative, previously recognized carried interest also may be reversed in a period of appreciation that is lower than the particular fund's hurdle rate.

Carried interest received in prior periods may be required to be returned by us in future periods if the funds’ investment performance declines below certain levels. Each fund is considered separately in this regard and, for a given fund, carried interest can never be negative over the life of a fund. If upon a hypothetical liquidation of a fund’s investments, at their then current fair values, previously recognized and distributed carried interest would be required to be returned, a liability is established for the potential clawback obligation. During the three and nine months ended September 30, 2020, the Company received carried interest distributions of $0.1 million and $0.2 million, respectively. Prior to these distributions, the Company received a carried interest distribution of $0.3 million from one of its managed funds, which had been fully liquidated as of December 31, 2019. In addition to thereceipt of these distributions, the Company has also received tax distributions related to the Company’s allocation of net income, which included an allocation of carried interest. Pursuant to the organizational documents of each respective fund, a portion of these tax distributions may be subject to clawback. As of September 30, 2020 and December 31, 2019, the Company had accrued $7.2 million for clawback obligations that would need to be paid if the funds were liquidated at fair value as of the end of the reporting period. The Company’s actual obligation, however, would not become payable or realized until the end of a fund’s life.

Other Investment income. Other investment income is comprised of unrealized appreciation (depreciation) resulting from changes in fair value of our equity method investments in addition to the income/expense allocations from such investments.

In certain cases, the entities that receive management and incentive fees from our funds are owned by Medley LLC together with other persons. See “Critical Accounting Policies” and Note 2, “Summary of Significant Accounting Policies,” to our condensed consolidated financial statements included in this Form 10-Q for additional information regarding the manner in which management fees, performance fees, carried interest, investment income and other fees are recognized.

8

Expenses

Compensation and Benefits. Compensation and benefits consists primarily of salaries, discretionary bonuses and benefits paid and payable to our employees, performance fee compensation and stock-based compensation associated with the grants of equity-based awards to our employees. Compensation expense relating to equity based awards are measured at fair value as of the grant date, reduced for actual forfeitures when they occur, and expensed over the vesting period on a straight-line basis. Bonuses are accrued over the service period to which they relate.

Guaranteed payments made to our senior professionals who are members of Medley LLC are recognized as compensation expense. The guaranteed payments to our Co-Chief Executive Officers are performance based and periodically set subject to maximums based on our total assets under management. Such maximums aggregated to $0.8 million and $1.3 million for the three months ended September 30, 2020 and 2019, respectively, and $2.2 million and $3.8 million during the nine months ended September 30, 2020 and 2019, respectively. During the three and nine months ended September 30, 2020 our Co-Chief Executive Officers received an aggregate of $0.2 million and $0.8 million, respectively, of guaranteed payments. Neither of our Co-Chief Executive Officers received any guaranteed payments during the three and nine months ended September 30, 2019.

General, Administrative and Other Expenses. General and administrative expenses include costs primarily related to professional services, office rent, depreciation and amortization, general insurance, recruiting, travel and related expenses, information technology, communication and information services and other general operating items.

Other Income (Expense)

Dividend Income. Dividend income consists of dividends associated with our investment in SIC and, prior to December 31, 2019, our investment in shares of MCC. Dividends are recognized on an accrual basis to the extent that such amounts are declared and expected to be collected.

Interest Expense. Interest expense consists primarily of interest expense relating to debt incurred by us.

Other (Income) Expenses, Net. Other income (expenses), net consists primarily of expenses associated with our revenue share payable and, prior to December 31, 2019, unrealized gains (losses) from our investment in shares of MCC.

Provision for (Benefit from) Income Taxes. We are treated as a partnership for income tax purposes and are therefore not subject to U.S. federal, state and local corporate income taxes. The Company is subject to New York City unincorporated business tax attributable to taxable income allocable to New York City.

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. To the extent it is more likely than not that the deferred tax assets will not be recognized, a valuation allowance is provided to offset their benefit.

We recognize the benefit of an income tax position only if it is more likely than not that the tax position will be sustained upon tax examination, based solely on the technical merits of the tax position. Otherwise, no benefit is recognized. The tax benefits recognized are measured based on the largest benefit that has a greater than 50% percent likelihood of being realized upon ultimate settlement. Interest expense and penalties related to income tax matters are recognized as a component of the provision for income taxes.

Net Income (Loss) Attributable to Redeemable Non-Controlling Interests and Non-Controlling Interests in Consolidated Subsidiaries. Net income (loss) attributable to redeemable non-controlling interests and non-controlling interests in consolidated subsidiaries represents the ownership interests that third parties hold in certain consolidated subsidiaries.

Net Income (Loss) Attributable to Non-Controlling Interests in Medley LLC. Net income (loss) attributable to non-controlling interests in Medley LLC represents the ownership interests that non-managing members’ hold in Medley LLC.

Our private funds are closed-end funds, and accordingly do not permit investors to redeem their interests other than in limited circumstances that are beyond our control, such as instances in which retaining the limited partnership interest could cause the limited partner to violate a law, regulation or rule. In addition, SMAs for a single investor may allow such investor to terminate the investment management agreement at the discretion of the investor pursuant to the terms of the applicable documents. We manage assets for MCC and SIC, both of which are BDCs. The capital managed by MCC and SIC is permanently committed to these funds and cannot be redeemed by investors.

9

Managing Business Performance

Non-GAAP Financial Information

In addition to analyzing our results on a GAAP basis, management also makes operating decisions and assesses business performance based on the financial and operating metrics and data that are presented without the consolidation of any fund(s). Core Net Income and Core EBITDA are non-GAAP financial measures that are used by management to assess the performance of our business. There are limitations associated with the use of non-GAAP financial measures as compared to the use of the most directly comparable U.S. GAAP financial measure and these measures supplement and should be considered in addition to and not in lieu of the results of operations discussed further under "Results of Operations,’’ which are prepared in accordance with U.S. GAAP. Furthermore, such measures may be inconsistent with measures presented by other companies. For a reconciliation of these measures to the most comparable measure in accordance with U.S. GAAP, see "Reconciliation of Certain Non-GAAP Performance Measures to Consolidated U.S. GAAP Financial Measures.’’

Core Net Income. Core Net Income is an income measure that is used by management to assess the performance of our business through the removal of non-core items, as well as non-recurring expenses associated with the IPO of Medley Ma. It is calculated by adjusting net income (loss) attributable to Medley LLC to exclude reimbursable expenses associated with the launch of funds, amortization of stock-based compensation expense associated with grants of restricted stock units at the time of Medley Management Inc.'s IPO, expenses associated with strategic initiatives and other non-core items and the income tax impact of these adjustments.

Core Earnings Before Interest, Income Taxes, Depreciation and Amortization (Core EBITDA). Core EBITDA is an income measure also used by management to assess the performance of our business. Core EBITDA is calculated as Core Net Income before interest expense, income taxes, depreciation and amortization.

Key Performance Indicators

When we review our performance we focus on the indicators described below:

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2020			2019			2020			2019
	(dollars in thousands, except AUM, share and per share amounts)
Consolidated Financial Data:
Net loss attributable to Medley LLC	$	(1,965	)	$	(3,472	)	$	(17,099	)	$	(5,058	)
Non-GAAP Data:
Core Net Income (Loss)	$	(1,022	)	$	(998	)	$	(11,542	)	$	526
Core EBITDA	$	1,675		$	2,123		$	(3,259	)	$	9,830
Other Data (at period end, in millions):
AUM	$	3,408		$	4,271		$	3,408		$	4,271
Fee Earning AUM	$	1,670		$	2,320		$	1,670		$	2,320

AUM

AUM refers to the assets of our funds. We view AUM as a metric to measure our investment and fundraising performance as it reflects assets generally at fair value plus available uncalled capital. For our funds, our AUM equals the sum of the following:

• Gross asset values or NAV of such funds;

• the drawn and undrawn debt (at the fund-level, including amounts subject to restrictions); and

• uncalled committed capital (including commitments to funds that have yet to commence their investment periods).

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The table below provides the roll forward of AUM for the three months ending September 30, 2020.

										% of AUM
	Permanent Capital Vehicles			Long-dated Private Funds and SMAs			Total			Permanent Capital Vehicles		Long-dated Private Funds and SMAs
	(Dollars in millions)
Ending balance, June 30, 2020	$	1,156		$	2,439		$	3,595		32	%	68	%
Commitments (1)	—			—			—
Capital reductions (2)	(66		)	(113		)	(179		)
Distributions (3)	—			(18		)	(18		)
Change in fund value (4)	25			(15		)	10
Ending balance, September 30, 2020	$	1,115		$	2,293		$	3,408		33	%	67	%

⁽¹⁾  With respect to permanent capital vehicles, represents decreases during the period for debt repayments offset, in part, by equity and debt offerings. With respect to long-dated private funds and SMAs, represents new commitments as well as any increases in available undrawn borrowings.

⁽²⁾  Represents the permanent reduction in equity or leverage during the period.

⁽³⁾  With respect to permanent capital vehicles, represents distributions of income. With respect to long-dated private funds and SMAs, represents return of capital, given our funds’ stage in their respective life cycle and the prioritization of capital distributions.

⁽⁴⁾  Includes interest income, realized and unrealized gains (losses), fees and/or expenses.

AUM decreased by $187.0 million to $3.4 billion as of September 30, 2020 compared to June 30, 2020. Our permanent capital vehicles decreased AUM by $41.0 million as of September 30, 2020 and our long-dated private funds and SMAs decreased AUM by $146.0 million as of September 30, 2020 in each case as compared with June 30, 2020.

The table below provides the roll forward of AUM for the nine months ending September 30, 2020.

										% of AUM
	Permanent Capital Vehicles			Long-dated Private Funds and SMAs			Total			Permanent Capital Vehicles		Long-dated Private Funds and SMAs
	(Dollars in millions)
Ending balance, December 31, 2019	$	1,548		$	2,574		$	4,122		38	%	62	%
Commitments (1)	(33		)	(12		)	(45		)
Capital reductions (2)	(234		)	(164		)	(398		)
Distributions (3)	(21		)	(66		)	(87		)
Change in fund value (4)	(145		)	(39		)	(184		)
Ending balance, September 30, 2020	$	1,115		$	2,293		$	3,408		33	%	67	%

⁽¹⁾  With respect to permanent capital vehicles, represents decreases during the period for debt repayments offset, in part, by equity and debt offerings. With respect to long-dated private funds and SMAs, represents new commitments as well as any increases in available undrawn borrowings.

⁽²⁾  Represents the permanent reduction in equity or leverage during the period.

⁽³⁾  With respect to permanent capital vehicles, represents distributions of income. With respect to long-dated private funds and SMAs, represents return of capital, given our funds’ stage in their respective life cycle and the prioritization of capital distributions.

⁽⁴⁾  Includes interest income, realized and unrealized gains (losses), fees and/or expenses.

AUM decreased by $714.0 million to $3.4 billion as of September 30, 2020 compared to December 31, 2019. Our permanent capital vehicles decreased AUM by $433.0 million as of September 30, 2020 and our long-dated private funds and SMAs decreased AUM by $281.0 million as of September 30, 2020 in each case as compared with December 31, 2019.

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Fee Earning AUM

Fee earning AUM refers to assets under management on which we directly earn base management fees. We view fee earning AUM as a metric to measure changes in the assets from which we earn management fees. Our fee earning AUM is the sum of all the individual fee earning assets of our funds that contribute directly to our management fees and generally equals the sum of:

• for our permanent capital vehicles, the average or total gross asset value, including assets acquired with the proceeds of leverage (see “Fee earning AUM based on gross asset value” in the “Components of Fee Earning AUM” table below for the amount of this component of fee earning AUM as of each period);

• for certain long-dated private funds within their investment period, the amount of limited partner capital commitments (see “Fee earning AUM based on capital commitments” in the “Components of Fee Earning AUM” table below for the amount of this component of fee earning AUM as of each period); and

• for the aforementioned funds beyond their investment period and certain managed accounts within their investment period, the amount of limited partner invested capital, the NAV of the fund or lower of cost or market value of a fund’s portfolio investments (see “Fee earning AUM based on invested capital or NAV” in the “Components of Fee Earning AUM” table below for the amount of this component of fee earning AUM as of each period).

Our calculations of fee earning AUM and AUM may differ from the calculations of other asset managers and, as a result, this measure may not be comparable to similar measures presented by others. In addition, our calculations of fee earning AUM and AUM may not be based on any definition of fee earning AUM or AUM that is set forth in the agreements governing the investment funds that we advise.

Components of Fee Earning AUM

	As of
	September 30, 2020		December 31, 2019
	(in millions)
Fee earning AUM based on gross asset value	$	995	$	1,361
Fee earning AUM based on invested capital, NAV or capital commitments	675		777
Total fee earning AUM	$	1,670	$	2,138

As of September 30, 2020, fee earning AUM based on gross asset value decreased by $366 million, compared to December 31, 2019. The decrease was due primarily to changes in fund value, distributions and debt repayments representing capital reductions.

Fee earning AUM based on invested capital, NAV or capital commitments as of September 30, 2020 decreased by $102 million compared to December 31, 2019. The decrease was primarily due to the return of portfolio investment capital to the respective funds.

The table below presents the roll forward of fee earning AUM for the three months ending September 30, 2020.

										% of Fee Earning AUM
	Permanent Capital Vehicles			Long-dated Private Funds and SMAs			Total			Permanent Capital Vehicles		Long-dated Private Funds and SMAs
	(Dollars in millions)
Ending balance, June 30, 2020	$	983		$	674		$	1,657		59	%	41	%
Commitments (1)	—			25			25
Capital reduction(2)	(14		)	—			(14		)
Distributions (3)	—			(14		)	(14		)
Change in fund value (4)	26			(10		)	16
Ending balance, September 30, 2020	$	995		$	675		$	1,670		60	%	40	%

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⁽¹⁾  With respect to permanent capital vehicles, represents increases or temporary reductions during the period through equity and debt offerings, as well as any increases in capital commitments. With respect to long-dated private funds and SMAs, represents new commitments or gross inflows, respectively.

⁽²⁾  Represents the permanent reduction in equity or leverage during the period.

⁽³⁾  Represents distributions of income, return of capital and return of portfolio investment capital to the fund.

⁽⁴⁾  Includes interest income, realized and unrealized gains (losses), fees and/or expenses.

Total fee earning AUM increased by $13 million to $1.7 billion as of September 30, 2020 compared to June 30, 2020, due primarily to permanent reductions in leverage during the period.

The table below presents the roll forward of fee earning AUM for the nine months ending September 30, 2020.

										% of Fee Earning AUM
	Permanent Capital Vehicles			Long-dated Private Funds and SMAs			Total			Permanent Capital Vehicles		Long-dated Private Funds and SMAs
	(Dollars in millions)
Ending balance, December 31, 2019	$	1,361		$	777		$	2,138		64	%	36	%
Commitments (1)	(91		)	59			(32		)
Capital reduction(2)	(106		)	—			(106		)
Distributions (3)	(21		)	(90		)	(111		)
Change in fund value (4)	(148		)	(71		)	(219		)
Ending balance, September 30, 2020	$	995		$	675		$	1,670		60	%	40	%

⁽¹⁾  With respect to permanent capital vehicles, represents increases or temporary reductions during the period through equity and debt offerings, as well as any increases in capital commitments. With respect to long-dated private funds and SMAs, represents new commitments or gross inflows, respectively.

⁽²⁾  Represents the permanent reduction in equity or leverage during the period.

⁽³⁾  Represents distributions of income, return of capital and return of portfolio investment capital to the fund.

⁽⁴⁾  Includes interest income, realized and unrealized gains (losses), fees and/or expenses.

Total fee earning AUM decreased by $468 million, or 22%, to $1.7 billion as of September 30, 2020 compared to December 31, 2019, due primarily to distributions, debt repayments representing capital reductions and changes in fund value.

Returns

The following section sets forth historical performance for our active funds.

Sierra Income Corporation (SIC)

We launched SIC, our first public non-traded permanent capital vehicle, in April 2012. SIC primarily focuses on direct lending to middle market borrowers in the United States. Since inception, we have provided capital for a total of 461 investments and have invested a total of $2.6 billion. As of September 30, 2020, fee earning AUM was $689 million. The performance for SIC as of September 30, 2020 is summarized below: 

Annualized Net Total Return(1)	1.0	%
Annualized Realized Losses on Invested Capital	1.6	%
Average Recovery(3)	56.0	%

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Medley Capital Corporation (MCC)

We launched MCC, our first permanent capital vehicle in January 2011. MCC primarily focuses on direct lending to private middle market borrowers in the United States. Since inception, we have provided capital for a total of 258 investments and have invested a total of $2.2 billion. As of September 30, 2020, fee earning AUM was $306 million. The performance for MCC as of September 30, 2020 is summarized below:

Annualized Net Total Return(2)	(5.8	)%
Annualized Realized Losses on Invested Capital	3.3	%
Average Recovery(3)	35.0	%

Medley Opportunity Fund II LP (MOF II)

MOF II is a long-dated private investment fund that we launched in December 2010. MOF II lends to middle market private borrowers, with a focus on providing senior secured loans. Since inception, we have provided capital for a total of 87 investments and have invested a total of $979 million. As of September 30, 2020, fee earning AUM was $81 million. MOF II is currently fully invested and actively managing its assets. The performance for MOF II as of September 30, 2020 is summarized below:

Gross Portfolio Internal Rate of Return(4):	5.1	%
Net Investor Internal Rate of Return(5):	1.2	%
Annualized Realized Losses on Invested Capital:	3.2	%
Average Recovery(3):	38.8	%

Medley Opportunity Fund III LP (MOF III)

MOF III is a long-dated private investment fund that we launched in December 2014. MOF III lends to middle market private borrowers in the U.S., with a focus on providing senior secured loans. Since inception, we have provided capital for a total of 54 investments and have invested a total of $219 million. As of September 30, 2020, fee earning AUM was $61 million. The performance for MOF III as of September 30, 2020 is summarized below: 

Gross Portfolio Internal Rate of Return(4):	8.6	%
Net Investor Internal Rate of Return(5):	4.8	%
Annualized Realized Losses on Invested Capital:	0.4	%
Average Recovery3:	41.6

Separately Managed Accounts (SMAs)

In the case of our separately managed accounts, the investor, rather than us, may control the assets or investment vehicle that holds or has custody of the related investments. Certain subsidiaries of Medley LLC serve as the investment adviser for our SMAs. Since inception, we have provided capital for a total of 251 investments and have invested a total of $1.3 billion. As of September 30, 2020, fee earning AUM in our SMAs was $429 million. The aggregate performance of our SMAs as of September 30, 2020 is summarized below:

Gross Portfolio Internal Rate of Return(4):	6.3	%
Net Investor Internal Rate of Return(6):	5.1	%
Annualized Realized Losses on Invested Capital:	1.1	%
Average Recovery(3):	32.5	%

Other Long-Dated Private Funds and Permanent Capital Vehicles

We launched Medley Opportunity Fund Offshore III LP (“MOF III Offshore”) in May 2017. MOF III Offshore invests in senior secured loans made to middle market private borrowers in the US.

We launched Aspect-Medley Investment Platform A LP (“Aspect”) in November 2016 and Aspect-Medley Investment Platform B LP (“Aspect-B”) in May 2018 to meet the current demand for equity capital solutions in the traditional corporate debt-backed collateralized loan obligation (“CLO”) market. Its investment objective is to generate current income, and also to generate capital appreciation through investing in CLO equity, as well as, equity and junior debt tranches trading in the secondary market.

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We launched Medley Credit Opportunity Fund (“MCOF”) in July 2016 to meet the current demand for equity capital solutions in the traditional corporate debt-backed collateralized loan obligation (“CLO”) market. Its investment objective is to generate current income, and also to generate capital appreciation through investing in CLO equity, as well as, equity and junior debt tranches trading in the secondary market.

The performance of Aspect, Aspect-B, MCOF and MOF III Offshore as of September 30, 2020 is not meaningful given the funds' limited capital invested to date.

⁽¹⁾  Annualized Net Total Return for SIC represents the annualized return assuming an investment at SIC’s inception, reinvestments of all distributions at prices obtained under SIC’s dividend reinvestment plan and no sales charge.

⁽²⁾  Annual Net Total Return for MCC represents the annualized return assuming an investment at the initial public offering price, reinvestments of all dividends and distributions at prices obtained under MCC's dividend reinvestment plan and selling at NAV as of the measurement date.

⁽³⁾  Average Recovery includes only those realized investments in which we experience a loss of principal on a cumulative cash flow basis and is calculated by dividing the total actual cash inflows for each respective investment, including all interest, principal and fee note repayments, dividends and transactions fees, if applicable, by the total actual cash outflows for each respective investment.

⁽⁴⁾  For MOF II, MOF III, and SMAs, the Gross Internal Rate of Return represents the cumulative investment performance from inception of each respective fund through September 30, 2020. The Gross Internal Rate of Return includes both realized and unrealized investments and excludes the impact of base management fees, incentive fees and other fund related expenses. For realized investments, the investment returns were calculated based on the actual cash outflows and inflows for each respective investment and include all interest, principal and fee note repayments, dividends and transactions fees, if applicable. For unrealized investments, the investment returns were calculated based on the actual cash outflows and inflows for each respective investment and include all interest, principal and fee note repayments, dividends and transactions fees, if applicable. The investment return assumes that the remaining unrealized portion of the investment is realized at the investment’s most recent fair value, as calculated in accordance with GAAP. There can be no assurance that the investments will be realized at these fair values and actual results may differ significantly.

⁽⁵⁾  Net Internal Rate of Return for MOF II and MOF III was calculated net of all management fees and carried interest allocation since inception and was computed based on the actual dates of capital contributions and the ending aggregate partners’ capital at the end of the period.

⁽⁶⁾  Net Internal Rate of Return for our SMAs was calculated using the Gross Internal Rate of Return, as described in note 4, and includes the actual management fees, incentive fees and general fund related expenses.

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Results of Operations

The following table and discussion sets forth information regarding our consolidated results of operations for the three and nine months ended September 30, 2020 and 2019. Our consolidated results of operations have been prepared on substantially the same basis for all historical periods presented.

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2020			2019			2020			2019
	(in thousands, except AUM data)
Revenues
Management fees (there were no Part I incentive fees during the periods presented)	$	6,275		$	9,607		$	19,807		$	30,728
Other revenues and fees	1,635			2,621			6,269			7,731
Investment income (loss):
Carried interest	(3		)	(142		)	83			651
Other investment income (loss), net	419			(550		)	(1,384		)	(922		)
Total Revenues	8,326			11,536			24,775			38,188
Expenses
Compensation and benefits	4,040			7,090			17,119			22,069
General, administrative and other expenses	3,599			5,403			11,682			12,763
Total Expenses	7,639			12,493			28,801			34,832
Other Income (Expense)
Dividend income	—			182			137			942
Interest expense	(2,535		)	(2,874		)	(7,950		)	(8,646		)
Other (expenses) income, net	(167		)	1,768			(5,592		)	(641		)
Total Other Expenses, Net	(2,702		)	(924		)	(13,405		)	(8,345		)
Loss before income taxes	(2,015		)	(1,881		)	(17,431		)	(4,989		)
Benefit from income taxes	(51		)	(28		)	(392		)	(71		)
Net Loss	(1,964		)	(1,853		)	(17,039		)	(4,918		)
Net income attributable to redeemable non-controlling interests and non-controlling interests in consolidated subsidiaries	1			1,619			60			140
Net Loss Attributable to Medley LLC.	$	(1,965	)	$	(3,472	)	$	(17,099	)	$	(5,058	)
Other data (at period end, in millions):
AUM	$	3,408		$	4,271		$	3,408		$	4,271
Fee earning AUM	$	1,670		$	2,320		$	1,670		$	2,320

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Three Months Ended September 30, 2020 Compared to Three Months Ended September 30,2019

Revenues

Management Fees. Total management fees decreased by $3.3 million, or 35%, to $6.3 million during the three months ended September 30, 2020 as compared to the three months ended September 30, 2019.

• Our management fees from permanent capital vehicles decreased by $2.5 million, or 39%, during the three months ended September 30, 2020 as compared to the same period in 2019. The decrease was due primarily to lower base management fees from both SIC and MCC as a result of a decrease in fee earning assets under management driven by a reduction in leverage and changes in fund values, which was mainly driven by a decline in portfolio valuations. In addition, in accordance with the Expense Support Agreement we entered into with MCC on June 12, 2020, we recorded expenses of $0.4 million which is being reported as a reduction to management fees for the three months ended September 30, 2020.

• Our management fees from long-dated private funds and SMAs decreased by $1.1 million, or 38%, during the three months ended September 30, 2020 as compared to the same period in 2019. The decrease was due primarily to lower base management fees as a result of a decrease in fee earning assets under management driven by distributions and changes in fund value.

Other Revenues and Fees. Other revenues and fees decreased by $1.0 million, or 38%, to $1.6 million during the three months ended September 30, 2020 as compared to the same period in 2019. The decrease was due primarily to lower administration fees for services provided to our permanent capital vehicles.

Investment Income (Loss). Investment income increased by approximately $1.1 million to net investment income of $0.4 million during the three months ended September 30, 2020 compared to the same period in 2019. The increase was due primarily to income from our equity method investments.

Expenses

Compensation and Benefits. Compensation and benefits expenses decreased by $3.1 million, or 43%, to $4.0 million for the three months ended September 30, 2020 as compared to the same period in 2019. The decrease was due primarily to a decrease in average employee headcount, stock compensation and a reduction in discretionary bonuses.

General, Administrative and Other Expenses. General, administrative and other expenses decreased by $1.8 million, or 33%, to $3.6 million during three months ended September 30, 2020 compared to the same period in 2019. The decrease was due primarily to a decrease in professional fees, primarily driven by lower costs associated with our terminated merger with Sierra, and a decrease in across the board expenses as a result of headcount reduction, employees working remotely and restrictions on travel and other expenses as a result of the continuing COVID-19 pandemic.

Other Income (Expense)

Dividend Income. There was no dividend income during the three months ended September 30, 2020 compared to dividend income of $0.2 million during the same period in 2019. The decrease was due to us no longer holding any shares of MCC and SIC temporarily suspending its dividend during the three months ended September 30, 2020.

Interest Expense. Interest expense decreased by $0.3 million, or 12%, to $2.5 million during the three months ended September 30, 2020 compared to the same period in 2019. The decrease was due primarily to SIC temporary suspending its dividend during the three months ended June 30, 2020, resulting in lower interest being due on our non-recourse promissory notes. Interest on the promissory notes is paid monthly and is equal, in part, to the dividends received by us related to the pledged shares of SIC.

Other Income (Expenses), net. Other expenses, net decreased by $1.9 million to $0.2 million during the three months ended September 30, 2020 compared to the same period in 2019. During the three months ended September 30, 2019 we recorded a $2.0 million unrealized gain on shares held of MCC. During the three months ended September 30, 2020, we did not hold any shares of MCC, and as a result there were no unrealized gains or losses recorded in the period. During the three months ended September 30, 2019, all of the unrealized losses on shares held of MCC were allocated to redeemable non-controlling interests in consolidated subsidiaries, which did not have any impact on the net income (loss) attributed to Medley LLC.

Provision for Income Taxes

Our effective income tax rate was 2.5% and 1.5% for the three months ended September 30, 2020 and 2019, respectively. Our tax rate is affected by recurring items, such as permanent differences and income allocated to certain redeemable non-controlling interests, which is not subject to U.S. federal, state and local corporate income taxes. Our effective tax rate is also impacted by discrete items that may occur in any given period, but are not consistent from period to period. Impacting the effective tax rate for

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three months ended September 30, 2020 is a full valuation allowance on our projected annual net deferred tax assets as well as losses allocated to non-controlling interests which are not subject to subject to federal, state and city corporate income taxes, as well as a true-up of a return to provision adjustment. During the three months ended September 30, 2019, our effective tax rate was impacted primarily by gains allocated to non-controlling interests which are not subject to subject to federal, state and city corporate income taxes.

Redeemable Non-Controlling Interests and Non-Controlling Interests in Consolidated Subsidiaries

Net income attributable to redeemable non-controlling interests and non-controlling interests in consolidated subsidiaries decreased by $1.6 million to less than $0.1 million for the three months ended September 30, 2020 as compared to the same period 2019. The decrease was due primarily to the allocation of unrealized gains on shares of MCC to one of our redeemable non-controlling interests, based on its preferred ownership interests held in one of our consolidated subsidiaries for the three months ended September 30, 2019, whose interests were redeemed in April 2020.

Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30,2019

Revenues

Management Fees. Total management fees decreased by $10.9 million, or 36%, to $19.8 million during the nine months ended September 30, 2020 as compared to the nine months ended September 30,2019.

• Our management fees from permanent capital vehicles decreased by $1.7 million, or 12%, during the nine months ended September 30, 2020 as compared to the same period in 2019. The decrease was due primarily to lower base management fees from both SIC and MCC as a result of a decrease in fee earning assets under management driven by a reduction in leverage and changes in fund values, which was mainly driven by a decline in portfolio valuations. The decline in management fees was also due in part to $0.7 million of expenses recorded under an Expense Support Agreement we entered into with MCC on June 12, 2020, as these expenses are reported as a reduction to management fees for the nine months ended September 30, 2020.

• Our management fees from long-dated private funds and SMAs decreased by $0.3 million, or 5%, during the nine months ended September 30, 2020 as compared to the same period in 2019. The decrease was due primarily to lower base management fees as a result of a decrease in fee earning assets under management driven by investment realizations, distributions and changes in fund value.

Other Revenues and Fees. Other revenues and fees decreased by $1.5 million, or 19%, to $6.3 million during the nine months ended September 30, 2020 as compared to the same period in 2019. The decrease was due primarily to lower administration fees for services provided to our permanent capital vehicles as well a decline in loan closing fees.

Investment Income (Loss). Investment loss, net increased by approximately $1.0 million to a net investment loss of $1.3 million during the nine months ended September 30, 2020 compared to the same period in 2019. The decrease was due to losses from our equity method investments.

Expenses

Compensation and Benefits. Compensation and benefits expenses decreased by $5.0 million, or 22%, to $17.1 million for the nine months ended September 30, 2020 as compared to the same period in 2019. The decrease was due primarily to a decrease in average employee headcount, stock compensation and a reduction in discretionary bonuses, offset in part, by an increase in severance expense.

General, Administrative and Other Expenses. General, administrative and other expenses decreased by $1.1 million, or 8%, to $11.7 million during nine months ended September 30, 2020 compared to the same period in 2019. The decrease was due primarily to lower travel, office expense and expenses associated with our previously consolidated fund in 2019 of $0.4 million. This decrease was offset in part by an increase in professional fees, primarily driven by costs associated with our terminated merger with Sierra.

Other Income (Expense)

Dividend Income. Dividend income decreased by $0.8 million to $0.1 million during the nine months ended September 30, 2020 compared to the same period in 2019. The decrease was due to us no longer holding any shares of MCC in 2020 and SIC temporary suspending its dividend for the periods commencing April 1, 2020 through September 30, 2020.

Interest Expense. Interest expense decreased by $0.7 million, or 8%, to $8.0 million during the nine months ended September 30, 2020 compared to the same period in 2019. The decrease was due primarily to SIC temporary suspending its dividend effective

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April 1, 2020 through September 30, 2020, resulting in lower interest being due on our non-recourse promissory notes. Interest on the promissory notes is paid monthly and is equal, in part, to the dividends received by us related to the pledged shares of SIC.

Other Income (Expenses), net. Other expenses, net increased by $5.0 million to $5.6 million during the nine months ended September 30, 2020 compared to the same period in 2019. This increase was due primarily to the revaluation of our revenue share payable during the nine months ended September 30, 2020, offset in part by a $0.5 million unrealized loss on MCC shares recorded during the nine months ended June 30, 2019. During the nine months ended September 30, 2020, we did not hold any shares of MCC, and as a result there were no unrealized gains or losses recorded in that period.

Provision for Income Taxes

Our effective income tax rate was 2.2% and 1.4% for the nine months ended September 30, 2020 and 2019, respectively. Our tax rate is affected by recurring items, such as permanent differences and income allocated to certain redeemable non-controlling interests, which is not subject to U.S. federal, state and local corporate income taxes, as well as a true-up of a return to provision adjustment. Our effective tax rate is also impacted by discrete items that may occur in any given period, but are not consistent from period to period. During the nine months ended September 30, 2020, our effective tax rate was impacted by a full valuation allowance on our projected annual net deferred tax assets as well as losses allocated to non-controlling interests which are not subject to subject to federal, state and city corporate income taxes. During the nine months ended September 30, 2019, our effective tax rate was impacted primarily by losses allocated to non-controlling interests which are not subject to subject to federal, state and city corporate income taxes, as well as, discrete items associated with the vesting of restricted LLC Units and payment of dividend equivalent payments on restricted stock units.

Redeemable Non-Controlling Interests and Non-Controlling Interests in Consolidated Subsidiaries

Net income attributable to redeemable non-controlling interests and non-controlling interests in consolidated subsidiaries decreased by $0.1 million to $0.1 million for the nine months ended September 30, 2020 as compared to the same period 2019. The decrease was due primarily to the allocation of unrealized gains on shares of MCC to one of our redeemable non-controlling interests, based on its preferred ownership interests held in one of our consolidated subsidiaries during the nine months ended September 30, 2019, whose interests were redeemed in April 2020, offset by an allocation of income to minority interests in certain of our carried interest vehicles during the nine months ended September 30, 2020.

Reconciliation of Certain Non-GAAP Performance Measures to Consolidated U.S. GAAP Financial Measures

In addition to analyzing our results on a GAAP basis, management also makes operating decisions and assesses business performance based on the financial and operating metrics and data that are presented in the table below. Management believes that these measures provide analysts, investors and management with helpful information regarding our underlying operating performance and our business, as they remove the impact of items management believes are not reflective of underlying operating performance. These non-GAAP measures are also used by management for planning purposes, including the preparation of internal budgets; and for evaluating the effectiveness of operational strategies. Additionally, we believe these non-GAAP measures provide another tool for investors to use in comparing our results with other companies in our industry, many of whom use similar non-GAAP measures. There are limitations associated with the use of non-GAAP financial measures as compared to the use of the most directly comparable U.S. GAAP financial measure and these measures supplement and should be considered in addition to and not in lieu of the results of operations discussed below. Furthermore, such measures may be inconsistent with measures presented by other companies.

Net income (loss) attributable to Medley LLC is the U.S. GAAP financial measure most comparable to Core Net Income and Core EBITDA.

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The following table is a reconciliation of net income (loss) attributable to Medley LLC on a consolidated basis to Core Net Income (Loss) and Core EBITDA.

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2020			2019			2020			2019
	(in thousands, except share and per share amounts)
Net loss attributable to Medley LLC	$	(1,965	)	$	(3,472	)	$	(17,099	)	$	(5,058	)
Reimbursable fund startup expenses	—			22			1			283
IPO date award stock-based compensation	—			282			—			555
Expenses associated with strategic initiatives	992			2,070			3,519			3,486
Other non-core items:
Severance expense	(14		)	200			2,103			1,462
Other (1)	—			—			120			—
Income tax expense on adjustments	(35		)	(100		)	(186		)	(202		)
Core Net Income (Loss)	$	(1,022	)	$	(998	)	$	(11,542	)	$	526
Interest expense	2,535			2,874			7,950			8,647
Income taxes	(18		)	72			(206		)	130
Depreciation and amortization	180			175			539			527
Core EBITDA	$	1,675		$	2,123		$	(3,259	)	$	9,830

⁽¹⁾  For the nine months ended September 30, 2020, Other items include an impairment loss on one of our investments.

Liquidity and Capital Resources

Our primary cash flow activities involve generating cash flow from operations, which largely includes management fees; and interest payments and repayments on our outstanding debt. As of September 30, 2020, we had $5.8 million in cash and cash equivalents. Our material source of cash from our operations is management fees, which are collected quarterly. Market conditions resulting from the continuing COVID-19 pandemic may impact our liquidity, as management fees may be impacted by declines or write downs in valuations, a slowdown or decline in deployment, or our ability to fund raise.

We primarily use cash flows from operations to pay compensation and benefits, general, administrative and other expenses, federal, state and local corporate income taxes, and debt service costs. As the impact of the COVID-19 pandemic on the economy and our operations is fluid and evolves, we will continue to assess our liquidity needs.

Debt Instruments

Senior Unsecured Debt

On August 9, 2016, Medley LLC completed a registered public offering of $25.0 million of an aggregate principal amount of 6.875% senior notes due 2026 (the “2026 Notes”). On October 18, 2016, Medley LLC completed a registered public offering of an additional $28.6 million in aggregate principal amount of the 2026 Notes. The 2026 Notes mature on August 15, 2026.

On January 18, 2017, Medley LLC completed a registered public offering of $34.5 million in aggregate principal amount of 7.25% senior notes due 2024 (the “2024 Notes”). On February 22, 2017, Medley LLC completed a registered public offering of an additional $34.5 million in aggregate principal amount of 2024 Notes. The 2024 Notes mature on January 30, 2024.

As of September 30, 2020, our outstanding senior unsecured debt balance was $119.0 million, and is reflected net of unamortized discount, premium and debt issuance costs of $3.6 million.

See Note 8, "Senior Unsecured Debt", to our condensed consolidated financial statements included in this quarterly report on Form 10-Q for additional information on the 2026 and the 2024 Notes.

Non-Recourse Promissory Notes

In April 2012, we borrowed $5.0 million under a non-recourse promissory note with a foundation, and $5.0 million under a non-recourse promissory note with a trust. These notes are scheduled to mature on December 31, 2020.

See Note 9 "Loans Payable" to our condensed consolidated financial statements included in this quarterly report on Form 10-Q for additional information regarding the promissory notes.

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Cash Flows

The significant captions and amounts from our condensed consolidated statements of cash flows are summarized below. Negative amounts represent a net outflow, or use of cash.

	For the Nine Months Ended September 30,
	2020			2019
	(in thousands)
Statements of cash flows data
Net cash (used in) provided by operating activities	$	(1,843	)	$	1,424
Net cash (used in) provided by investing activities	(460		)	182
Net cash used in financing activities	(2,251		)	(7,565		)
Net decrease in cash and cash equivalents	$	(4,554	)	$	(5,959	)

Operating Activities

Our net cash outflow from operating activities was $1.8 million during the nine months ended September 30, 2020. During the nine months ended September 30, 2020, net cash used in operating activities was attributed to a net loss of $17.0 million, non-cash adjustments of $8.9 million and a net increase in operating assets and liabilities of $6.3 million.

Investing Activities

Our investing activities generally reflect cash used to acquire fixed assets, purchase investments, and make capital contributions to our equity method investments. Cash provided by our investing activities generally reflect return of capital distributions received from our investment held at cost less impairment. During the nine months ended September 30, 2020, cash used in investing activities was attributed to a decrease in cash a result of the deconsolidation of STRF whose cash balance as of the date of deconsolidation was $0.4 million.

Financing Activities

Our financing activities generally reflect cash used to make distributions to non-controlling interests and redeemable non-controlling interests, make principal payments on our debt and make payments of tax withholdings related to net share settlement of restricted stock units. During the nine months ended September 30, 2020, cash used in financing activities consisted of (i) distributions to non-controlling interests and redeemable non-controlling interests of $0.5 million, (ii) payments to a former minority interest holder of $1.6 million and (iii) payments of tax withholdings related to net share settlement of restricted stock units of $0.1 million.

Sources and Uses of Liquidity

Our sources of liquidity are (i) cash on hand, (ii) net working capital, (iii) cash flows from operations, and (iv) realizations on our investments. Over the next twelve months, we expect that our cash and liquidity needs will continue to be met by cash generated by our ongoing operations. We expect that our primary liquidity needs will be comprised of cash to (i) provide capital to facilitate the growth of our existing investment management business, (ii) fund our commitments to funds that we advise, (iii) provide capital to facilitate our expansion into businesses that are complementary to our existing investment management business; (iv) pay operating expenses, including cash compensation to our employees, (v) fund capital expenditures, and (vi) pay income taxes.  

Our ability to fund cash dividends to our common shareholders is dependent on a myriad of factors, including among others: general economic and business conditions; our strategic plans and prospects; our business and investment opportunities; timing of capital calls by our funds in support of our commitments; our financial condition and operating results; working capital requirements and other anticipated cash needs; contractual restrictions and obligations; legal, tax and regulatory restrictions; restrictions on the payment of distributions by our subsidiaries to us; and other relevant factors.

Critical Accounting Policies

We prepare our consolidated financial statements in accordance with U.S. GAAP. In applying many of these accounting principles, we need to make assumptions, estimates or judgments that affect the reported amounts of assets, liabilities, revenues and expenses in our consolidated financial statements. We base our estimates and judgments on historical experience and other assumptions that we believe are reasonable under the circumstances. These assumptions, estimates or judgments, however, are both subjective and subject to change, and actual results may differ from our assumptions and estimates. If actual amounts are ultimately different from our estimates, the revisions are included in our results of operations for the period in which the actual

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amounts become known. We believe the following critical accounting policies could potentially produce materially different results if we were to change underlying assumptions, estimates or judgments. See Note 2, “Summary of Significant Accounting Policies,” to our condensed consolidated financial statements included in this Form 10-Q for a summary of our significant accounting policies.

Principles of Consolidation

In accordance with ASC 810, Consolidation, we consolidate those entities where we have a direct and indirect controlling financial interest based on either a variable interest model or voting interest model. As such, we consolidate entities that we conclude are VIEs, for which we are deemed to be the primary beneficiary and entities in which we hold a majority voting interest or have majority ownership and control over the operational, financial and investing decisions of that entity.

For legal entities evaluated for consolidation, we must determine whether the interests that it holds and fees paid to it qualify as a variable interest in an entity. This includes an evaluation of the management fees and performance fees paid to us when acting as a decision maker or service provider to the entity being evaluated. Fees received by us that are customary and commensurate with the level of services provided, and we don’t hold other economic interests in the entity that would absorb more than an insignificant amount of the expected losses or returns of the entity, would not be considered a variable interest. We factor in all economic interests including proportionate interests through related parties, to determine if fees are considered a variable interest.

An entity in which we hold a variable interest is a VIE if any one of the following conditions exist: (a) the total equity investment at risk is not sufficient to permit the legal entity to finance its activities without additional subordinated financial support, (b) the holders of equity investment at risk have the right to direct the activities of the entity that most significantly impact the legal entity’s economic performance, or (c) the voting rights of some investors are disproportionate to their obligation to absorb losses or rights to receive returns from a legal entity. For limited partnerships and other similar entities, non-controlling investors must have substantive rights to either dissolve the fund or remove the general partner (“kick-out rights”) in order to qualify as a VIE.

For those entities that qualify as a VIE, the primary beneficiary is generally defined as the party who has a controlling financial interest in the VIE. We are generally deemed to have a controlling financial interest if we have the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, and the obligation to absorb losses or receive benefits from the VIE that could potentially be significant to the VIE. We determine whether we are the primary beneficiary of a VIE at the time we become initially involved with the VIE and we reconsider that conclusion continuously. The primary beneficiary evaluation is generally performed qualitatively on the basis of all facts and circumstances. However, quantitative information may also be considered in the analysis, as appropriate. These assessments require judgments. Each entity is assessed for consolidation on a case-by-case basis. 

For those entities evaluated under the voting interest model, we consolidate the entity if we have a controlling financial interest. We have a controlling financial interest in a voting interest entity (“VOE”) if we own a majority voting interest in the entity.

Performance Fees

Performance fees are contractual fees which do not represent a capital allocation of income to the general partner or investment manager that are earned based on the performance of certain funds, typically, our separately managed accounts. Performance fees are earned based on the fund performance during the period, subject to the achievement of minimum return levels in accordance with the respective terms set out in each fund’s investment management agreement. We account for performance fees in accordance with ASC 606, Revenue from Contracts with Customers, and we will only recognize performance fees when it is probable that a significant reversal of such fees will not occur in the future.

Carried Interest

Carried interest are performance-based fees that represent a capital allocation of income to the general partner or investment manager. Carried interest is allocated to us based on cumulative fund performance to date, subject to the achievement of minimum return levels in accordance with the respective terms set out in each fund’s governing documents.

We account for carried interest under, ASC 323, Investments-Equity Method and Joint Ventures. Under this standard, we record carried interest in a consistent manner as we historically had which is based upon an assumed liquidation of that fund's net assets as of the reporting date, regardless of whether such amounts have been realized. For any given period, carried interest on our condensed consolidated statements of operations may include reversals of previously recognized carried interest due to a decrease in the value of a particular fund that results in a decrease of cumulative fees earned to date. Since fund return hurdles are cumulative, previously recognized carried interest also may be reversed in a period of appreciation that is lower than the particular fund's hurdle rate.

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Carried interest received in prior periods may be required to be returned by us in future periods if the funds’ investment performance declines below certain levels. Each fund is considered separately in this regard and, for a given fund, carried interest can never be negative over the life of a fund. If upon a hypothetical liquidation of a fund’s investments, at their then current fair values, previously recognized and distributed carried interest would be required to be returned, a liability is established for the potential clawback obligation. Our actual obligation, however, would not become payable or realized until the end of a fund’s life.

Income Taxes

We are treated as a partnership for income tax purposes and are therefore not subject to U.S. federal, state and local tax corporate income taxes. We are subject to New York City unincorporated business tax attributable to taxable income allocable to New York City.

Stock-based Compensation

We account for stock-based compensation in accordance with ASC 718, Compensation – Stock Compensation. Under the fair value recognition provision of this guidance, share-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service period and reduced for actual forfeitures in the period they occur. Stock-based compensation is included as a component of compensation and benefits in our consolidated statements of operations.

Recent Accounting Pronouncements

Information regarding recent accounting pronouncements and their impact on us can be found in Note 2, “Summary of Significant Accounting Policies,” to our condensed consolidated financial statements included in this Form 10-Q.

Off-Balance Sheet Arrangements

In the normal course of business, we may engage in off-balance sheet arrangements, including transactions in guarantees, commitments, indemnifications and potential contingent repayment obligations.

See Note 12, “Commitments and Contingencies,” to our condensed consolidated financial statements included in this quarterly report on Form 10-Q for a discussion of our commitments and contingencies.

Contractual Obligations

The following table sets forth information relating to our contractual obligations as of September 30, 2020.

	Less than 1 year		1 - 3 years		4 - 5 years		More than 5 years		Total
	(in thousands)
Medley Obligations
Operating lease obligations (1)	$	2,526	$	5,146	$	608	$	—	$	8,280
Loans payable (2)	10,000		—		—		—		10,000
Senior unsecured debt (3)	—		—		69,000		53,595		122,595
Payable to former minority interest holder of SIC Advisors LLC (Note 10)	2,050		6,000		—		—		8,050
Revenue share payable	781		1,103		703		4,705		7,292
Capital commitments to funds (4)	256		—		—		—		256
Total	$	15,613	$	12,249	$	70,311	$	58,300	$	156,473

⁽¹⁾  We lease office space in New York and San Francisco under non-cancelable lease agreements. The amounts in this table represent the minimum lease payments required over the term of the lease, and include operating leases for office equipment.

⁽²⁾  We have included all loans described in Note 9, “Loans Payable,” to our consolidated financial statements included in this Form 10-Q.

⁽³⁾  We have included all our obligations described in Note 8, “Senior Unsecured Debt,” to our consolidated financial statements included in this Form 10-Q. In addition to the principal amounts above, the Company is required to make quarterly interest payments of $1.2 million related to our 2024 Notes and $0.9 million related to our 2026 Notes.

⁽⁴⁾  Represents equity commitments by us to certain long-dated private funds managed by us. These amounts are generally due on demand and are therefore presented in the less than one year category.

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Indemnifications

In the normal course of business, we enter into contracts that contain indemnities for our affiliates, persons acting on our behalf or such affiliates and third parties. The terms of the indemnities vary from contract to contract and the maximum exposure under these arrangements, if any, cannot be determined and has neither been recorded in our consolidated financial statements. As of September 30, 2020, we have not had prior claims or losses pursuant to these contracts and expect the risk of loss to be remote.

Contingent Obligations

The partnership documents governing our funds generally include a clawback provision that, if triggered, may give rise to a contingent obligation that may require the general partner to return amounts to the fund for distribution to investors. Therefore, carried interest, generally, is subject to reversal in the event that the funds incur future losses. These losses are limited to the extent of the cumulative carried interest recognized in income to date, net of a portion of taxes paid. Due in part to our investment performance and the fact that our carried interest is generally determined on a liquidation basis, as of September 30, 2020, we accrued $7.2 million for clawback obligations that would need to be paid had the funds been liquidated as of that date. There can be no assurance that we will not incur additional clawback obligations in the future. If all of the existing investments were valued at $0, the amount of cumulative carried interest that has been recognized would be reversed. We believe that the possibility of all of the existing investments becoming worthless is remote. At September 30, 2020, had we assumed all existing investments were valued at $0, the net amount of carried interest subject to additional reversal would have been approximately $0.8 million.

Carried interest is also affected by changes in the fair values of the underlying investments in the funds that we advise. Valuations, on an unrealized basis, can be significantly affected by a variety of external factors including, but not limited to, bond yields and industry trading multiples. Under the governing agreements of certain of our funds, we may have to fund additional amounts on account of clawback obligations beyond what we received in performance fee compensation on account of distributions of performance fee payments made to current or former professionals from such funds if they do not fund their respective shares of such clawback obligations. We will generally retain the right to pursue any remedies that we have under such governing agreements against those carried interest recipients who fail to fund their obligations.

Additionally, at the end of the life of the funds, there could be a payment due to a fund by us if we have recognized more carried interest than was ultimately earned. The general partner obligation amount, if any, will depend on final realized values of investments at the end of the life of the fund.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our primary exposure to market risk is related to our role as general partner or investment advisor to our investment funds and the sensitivity to movements in the fair value of their investments, including the effect on management fees, performance fees and investment income.

The market price of investments may significantly fluctuate during the period of investment. Investments may decline in value due to factors affecting securities markets generally or particular industries represented in the securities markets. The value of an investment may decline due to general market conditions which are not specifically related to such investment, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or currency rates or adverse investor sentiment generally. They may also decline due to factors that affect a particular industry or industries, such as labor shortages or increased production costs and competitive conditions within an industry.

Effect on Management Fees

Management fees are generally based on a defined percentage of gross asset values, total committed capital, net invested capital and NAV of the investment funds managed by us as well as a percentage of net interest income over a performance hurdle. Management fees calculated based on fair value of assets or net investment income are affected by short-term changes in market values.

The overall impact of a short-term change in market value may be mitigated by fee definitions that are not based on market value including invested capital and committed capital, market value definitions that exclude the impact of realized and/or unrealized gains and losses, market value definitions based on beginning of the period values or a form of average market value including daily, monthly or quarterly averages, as well as monthly or quarterly payment terms.

As such, based on an incremental 10% short-term increase in fair value of the investments in our permanent capital vehicles, long-dated private funds and SMAs as of September 30, 2020, we calculated approximately a $0.3 million and $1.3 million increase in management fees for the three and nine months ended September 30,2020, respectively. In the case of a 10% short-term decline in fair value of the investments in our permanent capital, long-dated funds and SMAs as of September 30, 2020, we calculated

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approximately a $0.5 million and $1.6 million decrease in management fees for the three and nine months ended September 30,2020, respectively.

Effect on Performance Fees

Performance fees are based on certain specific hurdle rates as defined in the funds' applicable investment management or partnership agreements. Performance fees for any period are based upon the probability that there will not be a significant future revenue reversal of such fees in the future. We exercise significant judgments when determining if any performance fees should be recognized in a given period including the below.

• whether the fund is near final liquidation

• whether the fair value of the remaining assets in the fund is significantly in excess of the threshold at which the Company would earn an incentive fee

• the probability of significant fluctuations in the fair value of the remaining assets

• the SMA’s remaining investments are under contract for sale with contractual purchase prices that would result in no clawback and it is highly likely that the contracts will be consummated

Short-term changes in the fair values of funds' investments usually do not impact accrued performance fees. The overall impact of a short-term change in market value may be mitigated by a number of factors including, but not limited to, the way in which carried interest performance fees are calculated, which is not ultimately dependent on short-term moves in fair market value, but rather realize cumulative performance of the investments through the end of the long-dated private funds, and SMAs lives.

We have not recognized any performance fees during the three and nine months ended September 30, 2020. No performance fees would be recognized by an incremental 10% short-term increase or decrease in the fair value of investments held by our separately management accounts.

Effect on Part I and Part II Incentive Fees

Part I incentive fees are based on certain specific hurdle rates as defined in our permanent capital vehicles' applicable investment management agreements. Part II incentive fees are based upon realized gains netted against cumulative realized and unrealized losses. These incentive fees are not subject to clawback.

Short-term changes in the fair values of the investments of our permanent capital vehicles may materially impact Part II incentive fees depending on the respective vehicle's performance relative to applicable hurdles to the extent there were realized gains that we would otherwise earn Part II incentive fees on.

As such, based on an incremental 10% short-term increase or decrease in fair value of the investments in our permanent capital vehicles as of September 30, 2020, we calculated no change in Part I and II incentive fees for the three and nine months ended September 30,2020. We did not earn any Part I or Part II incentive fees during the three and nine months months ended September 30, 2020.

Effect on Carried Interest

Carried interest are performance based fees that represent a capital allocation of income to the general partner or investment manager. Carried interest are allocated to the Company based on cumulative fund performance to date, subject to the achievement of minimum return levels in accordance with the respective terms set out in each fund’s governing documents.

Short-term changes in the fair values of funds' investments may materially impact accrued carried interest depending on the respective funds' performance relative to applicable return levels. The overall impact of a short-term change in market value may be mitigated by a number of factors including, but not limited to, the way in which carried interest are calculated, which is not ultimately dependent on short-term moves in fair market value, but rather realized cumulative performance of the investments through the end of the long-dated private funds' lives. However, short-term moves can meaningfully impact our ability to accrue carried interest and receive cash payments in any given period.

As such, based on an incremental 10% short-term increase in fair value of the investments in our long-dated private funds as of September 30, 2020, we calculated approximately a $2.4 million increase in carried interest for the nine months ended September 30, 2020. In the case of a 10% short-term decline in fair value of investments in our long-dated private funds as of September 30, 2020, we calculated approximately a $51 thousand decrease in carried interest for the nine months ended September 30, 2020.

Interest Rate Risk

As of September 30, 2020, we had $136.2 million of debt outstanding, net of unamortized discount, premium, and issuance

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costs, presented as senior unsecured debt, loans payable and amount due to former minority interest holder in our condensed consolidated financial statements included elsewhere in this Form 10-Q. Our debt bears interest at fixed rates, and therefore is not subject to interest rate fluctuation risk.

As credit-oriented investors, we are also subject to interest rate risk through the securities we hold in our funds. A 100 basis point increase in interest rates would be expected to negatively affect prices of securities that accrue interest income at fixed rates and therefore negatively impact net change in unrealized appreciation on the funds' investments. The actual impact is dependent on the average duration of such holdings. Conversely, securities that accrue interest at variable rates would be expected to benefit from a 100 basis points increase in interest rates because these securities would generate higher levels of current income and therefore positively impact interest and dividend income, subject to LIBOR. In the cases where our funds pay management fees based on NAV, we would expect management fees to experience a change in direction and magnitude corresponding to that experienced by the underlying portfolios.

Credit Risk

We are party to agreements providing for various financial services and transactions that contain an element of risk in the event that the counterparties are unable to meet the terms of such agreements. In such agreements, we depend on the respective counterparty to make payment or otherwise perform. We generally endeavor to minimize our risk of exposure by limiting to reputable financial institutions the counterparties with which we enter into financial transactions. In other circumstances, availability of financing from financial institutions may be uncertain due to market events, and we may not be able to access these financing markets.

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Item 4.     Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our co-principal executive officers and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. The design of any disclosure controls and procedures is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives. Our management, with the participation of our Co-Chief Executive Officers and our Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, and subject to the foregoing, our Co-Chief Executive Officers and our Chief Financial Officer have concluded that, as of the end of the period covered by this report, the design and operation of our disclosure controls and procedures were effective to accomplish their objectives at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 30, 2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II.

Item 1.     Legal Proceedings

From time to time, the Company is involved in various legal proceedings, lawsuits and claims incidental to the conduct of its business. Its business is also subject to extensive regulation, which may result in regulatory proceedings against it. Except as described below, the Company is not currently party to any material legal proceedings.

One of the Company's subsidiaries, MCC Advisors LLC, was named as a defendant in a lawsuit on May 29, 2015, by Moshe Barkat and Modern VideoFilm Holdings, LLC (“MVF Holdings”) against MCC, MOF II, MCC Advisors LLC, Deloitte Transactions and Business Analytics LLP A/K/A Deloitte ERG (“Deloitte”), Scott Avila (“Avila”), Charles Sweet, and Modern VideoFilm, Inc. (“MVF”). The lawsuit is pending in the California Superior Court, Los Angeles County, Central District, as Case No. BC 583437. The lawsuit was filed after MCC, as agent for the lender group, exercised remedies following a series of defaults by MVF and MVF Holdings on a secured loan with an outstanding balance at the time in excess of $65 million. The lawsuit sought damages in excess of $100 million. Deloitte and Avila have settled the claims against them in exchange for payment of $1.5 million. On June 6, 2016, the court granted the Medley defendants’ demurrers on several counts and dismissed Mr. Barkat’s claims with prejudice except with respect to his claim for intentional interference with contract. On March 18, 2018, the court granted the Medley defendants’ motion for summary adjudication with respect to Mr. Barkat’s sole remaining claim against the Medley Defendants for intentional interference. Now that the trial court has ruled in favor of the Medley defendants on all counts, the only remaining claims in the Barkat litigation are MCC and MOF II’s affirmative counterclaims against Mr. Barkat and MVF Holdings, which MCC and MOF II are diligently prosecuting.

On August 29, 2016, MVF Holdings filed another lawsuit in the California Superior Court, Los Angeles County, Central District, as Case No. BC 631888 (the “Derivative Action”), naming MCC Advisors LLC and certain of Medley’s employees as defendants, among others. The plaintiff in the Derivative Action, asserts claims against the defendants for breach of fiduciary duty, aiding and abetting breach of fiduciary duty, unfair competition, breach of the implied covenant of good faith and fair dealing, interference with prospective economic advantage, fraud, and declaratory relief. MCC Advisors LLC and the other defendants believe the causes of action asserted in the Derivative Action are without merit and all defendants intend to continue to assert a vigorous defense. On October 16, 2020, the parties agreed to a settlement of all claims arising in connection with the Hugh Miller matter, the MVF Derivative Action and the MVF chapter 11 proceedings. The settlement was read into the record on October 16, 2020 at a hearing in the MVF Derivative Action. The settlement is binding, subject to bankruptcy court approval in the MVF bankruptcy proceedings. A hearing to approve the settlement is scheduled for November 30, 2020. Pursuant to the settlement, subject to bankruptcy court approval, the Lenders will pay the plaintiffs a total of $5 million. All of the $5 million is being funded by the insurance carriers for the Lenders pro rata based on their participation in the original loan to MVF.

Medley LLC, Medley Capital Corporation, Medley Opportunity Fund II LP, Medley Management, Inc., Medley Group, LLC, Brook Taube, and Seth Taube (the “Medley Defendants”) were named as defendants, along with other various parties, in a putative class action lawsuit captioned as Royce Solomon, Jodi Belleci, Michael Littlejohn, and Giulianna Lomaglio v. American Web Loan, Inc., AWL, Inc., Mark Curry, MacFarlane Group, Inc., Sol Partners, Medley Opportunity Fund, II, LP, Medley LLC, Medley Capital Corporation, Medley Management, Inc., Medley Group, LLC, Brook Taube, Seth Taube, DHI Computing Service, Inc., Middlemarch Partners, and John Does 1-100, filed on December 15, 2017, amended on March 9, 2018, and amended a second time on February 15, 2019, in the United States District Court for the Eastern District of Virginia, Newport News Division, as Case No. 4:17-cv-145 (hereinafter, “Class Action 1”). Medley Opportunity Fund II LP and Medley Capital Corporation were also named as defendants, along with various other parties, in a putative class action lawsuit captioned George Hengle and Lula Williams v. Mark Curry, American Web Loan, Inc., AWL, Inc., Red Stone, Inc., Medley Opportunity Fund II LP, and Medley Capital Corporation, filed February 13, 2018, in the United States District Court, Eastern District of Virginia, Richmond Division, as Case No. 3:18-cv-100 (“Class Action 2”). Medley Opportunity Fund II LP and Medley Capital Corporation were also named as defendants, along with various other parties, in a putative class action lawsuit captioned John Glatt, Sonji Grandy, Heather Ball, Dashawn Hunter, and Michael Corona v. Mark Curry, American Web Loan, Inc., AWL, Inc., Red Stone, Inc., Medley Opportunity Fund II LP, and Medley Capital Corporation, filed August 9, 2018 in the United States District Court, Eastern District of Virginia, Newport News Division, as Case No. 4:18-cv-101 (“Class Action 3”) (together with Class Action 1 and Class Action 2, the “Virginia Class Actions”). Medley Opportunity Fund II LP was also named as a defendant, along with various other parties, in a putative class action lawsuit captioned Christina Williams and Michael Stermel v. Red Stone, Inc. (as successor in interest to MacFarlane Group, Inc.), Medley Opportunity Fund II LP, Mark Curry, Brian McGowan, Vincent Ney, and John Doe entities and individuals, filed June 29, 2018 and amended July 26, 2018, in the United States District Court for the Eastern District of Pennsylvania, as Case No. 2:18-cv-2747 (the “Pennsylvania Class Action”).

On October 26, 2020, Medley Opportunity Fund II LP and Medley Capital Corporation were served with a new complaint in a putative class action lawsuit captioned Charles P. McDaniel v. Mark Curry, American Web Loan, Inc., Red Stone, Inc., Medley

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Opportunity Fund II LP, and Medley Capital Corporation, filed October 22, 2020, in the Circuit Court of Ohio County, West Virginia, as Case No. 20-C-169 (the “West Virginia Class Action”)(together with the Virginia Class Actions and the Pennsylvania Class Action, the “Class Action Complaints”).

The plaintiffs in the Virgina and Pennsylvania Class Action Complaints filed their putative class actions alleging claims under the Racketeer Influenced and Corrupt Organizations Act, and various other claims arising out of the alleged payday lending activities of American Web Loan. The claims against Medley Opportunity Fund II LP, Medley LLC, Medley Capital Corporation, Medley Management, Inc., Medley Group, LLC, Brook Taube, and Seth Taube (in Class Action 1, as amended); Medley Opportunity Fund II LP and Medley Capital Corporation (in Class Action 2 and Class Action 3); and Medley Opportunity Fund II LP (in the Pennsylvania Class Action), allege that those defendants in each respective action exercised control over, or improperly derived income from, and/or obtained an improper interest in, American Web Loan’s payday lending activities as a result of a loan to American Web Loan. The plaintiff in the West Virginia Class Action Complaint filed his putative class action alleging claims arising West Virginia state law’s regulating interest rates and other fees in connection with consumer lending activities.

The loan was made by Medley Opportunity Fund II LP in 2011. American Web Loan repaid the loan from Medley Opportunity Fund II LP in full in February of 2015, more than 1 year and 10 months prior to any of the loans allegedly made by American Web Loan to the alleged class plaintiff representatives in Class Action 1. In Class Action 2, the alleged class plaintiff representatives had not alleged when they received any loans from American Web Loan. In Class Action 3, the alleged class plaintiff representatives claim to have received loans from American Web Loan at various times from February 2015 through April 2018. In the Pennsylvania Class Action, the alleged class plaintiff representatives claim to have received loans from American Web Loan in 2017.

By orders dated August 7, 2018 and September 17, 2018, the Court presiding over the Virginia Class Actions consolidated those cases for all purposes. On October 12, 2018, Plaintiffs in Class Action 3 filed a notice of voluntary dismissal of all claims, and on October 29, 2018, Plaintiffs in Class Action 2 filed a notice of voluntary dismissal of all claims.

On April 16, 2020, the parties to Class Action 1 reached a settlement reflected in a Settlement Agreement (the “Settlement Agreement”) that has been publicly filed in Class Action 1 (ECF No. 414-1). The Settlement Agreement was subject to court approval. At a hearing on November 4, 2020, the court denied the plaintiffs’ motion to approve the settlement and ordered the parties to mediation in front of Judge Novak of the Eastern District of Virginia in December of 2020.

On October 29, 2020, the parties to the Pennsylvania Class Action reached a settlement pursuant to which AWL agreed to make a payment to the plaintiffs and to forgive loans that they owed AWL. The Medley Defendants obtained a full release and bore none of the settlement amount. The Pennsylvania Class Action was dismissed with prejudice on November 2, 2020.

The Medley Defendants and the other defendants believe the alleged claims asserted in the Virginia Class Action and the West Virginia putative class action are without merit and they are defending these lawsuits vigorously.

On May 11, 2020, the court approved a settlement and dismissed two purported class actions that had been commenced in the Supreme Court of the State of New York, County of New York, by alleged stockholders of Medley Capital Corporation, captioned, respectively, Helene Lax v. Brook Taube, et al., Index No. 650503/2019, and Richard Dicristino, et al. v. Brook Taube, et al., Index No. 650510/2019 (together with the Lax Action, the “New York Actions”). Named as defendants in each complaint were Brook Taube, Seth Taube, Jeffrey Tonkel, Arthur S. Ainsberg, Karin Hirtler-Garvey, John E. Mack, Mark Lerdal, Richard T. Allorto, Jr., Medley Capital Corporation (“MCC”), MDLY, Sierra Income Corporation (“Sierra”), and Sierra Management, Inc. The complaints in each of the New York Actions alleged that the individuals named as defendants breached their fiduciary duties in connection with the proposed merger of MCC with and into Sierra, and that the other defendants aided and abetted those alleged breaches of fiduciary duties. Compensatory damages in unspecified amounts were sought. The defendants vigorously denied any wrongdoing or liability with respect to the facts and claims that were asserted, or which could have been asserted, in the New York Actions. None of the defendants paid any consideration to the plaintiffs in connection with the dismissal. The plaintiffs agreed to dismiss the New York Actions in exchange for MCC’s agreement to pay $50,000 in attorneys’ fees and expenses to plaintiffs’ counsel.     

While management currently believes that the ultimate outcome of these proceedings will not have a material adverse effect on the Company’s consolidated financial position or overall trends in consolidated results of operations, litigation is subject to inherent uncertainties. The Company reviews relevant information with respect to litigation and regulatory matters on a quarterly and annual basis. The Company establishes liabilities for litigation and regulatory actions when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. For matters where a loss is believed to be reasonably possible, but not probable, no liability is established.

Item 1A.  Risk Factors

For a discussion of our potential risks and uncertainties, see the information under the heading “Risk Factors” in Part I., Item 1A. of our Annual Report on Form 10-K for fiscal year ended December 31, 2019, filed with the SEC on March 27, 2020, which is accessible on the SEC's website at www.sec.gov. Other than the items disclosed herein, there have been no material changes during the nine months ended September 30, 2020 to the risk factors discussed in Part I., Item 1A. of our Annual Report on Form 10-K. Additional risks or uncertainties not currently known to us or that we currently deem to be immaterial also may materially affect our business, financial condition and/or operating results.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4.     Mine Safety Disclosures

Not Applicable.

Item 5.     Other Information

None.

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Item 6.     Exhibits

Exhibit No.	Exhibit Description
3.1	Amended and Restated Certificate of Incorporation of Medley Management Inc. (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (File No. 001-36638) filed on September 29, 2014).
3.2	Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Medley Management Inc. implementing the Reverse Stock Split (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (File No. 001-36638) filed on October 22, 2020).
3.3	Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Medley Management Inc. implementing the Authorized Share Reduction (incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K (File No. 001-36638) filed on October 22, 2020).
3.4	Amended and Restated By-Laws of Medley Management Inc. (incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K (File No. 001-36638) filed on September 29, 2014).
4.1	Indenture, dated August 9, 2016, between Medley LLC and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 of Medley LLC’s Current Report on Form 8-K (File No. 333-212514) filed on August 10, 2016).
4.2	First Supplemental Indenture, dated August 9, 2016, between Medley LLC and U.S. Bank National Association, as trustee, including the form of note attached as an exhibit thereto (incorporated by reference to Exhibit 4.2 of Medley LLC’s Current Report on Form 8-K (File 333-212514) filed on August 10, 2016).
4.3	Second Supplemental Indenture dated as of October 18, 2016, between Medley LLC and U.S. Bank National Association, as Trustee, with the form of note included therein (incorporated by reference to Exhibit 4.1 of Medley LLC’s Current Report on Form 8-K (File No. 001-37857) filed on October 19, 2016).
4.4	Third Supplemental Indenture, dated January 18, 2017, between Medley LLC and U.S. Bank National Association, as trustee, including the form of note attached as an exhibit thereto (incorporated by reference to Exhibit 4.1 of Medley LLC's Current Report on Form 8-K (File No. 001-37857) filed on January 20, 2017).
4.5	Fourth Supplemental Indenture, dated February 22, 2017, between Medley LLC and U.S. Bank National Association, as trustee, including the form of note attached as an exhibit thereto (incorporated by reference to Exhibit 4.1 of Medley LLC's Current Report on Form 8-K (File No. 001-37857) filed on February 22, 2017).
10.1	Separation Agreement, dated August 13, 2020 between Medley LLC and John Fredericks†
31.1*	Certification by Co-Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002
31.2*	Certification by Co-Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002
31.3*	Certification by Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002
32.1**	Certification of Co-Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2**	Certification of Co-Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.3**	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS*	XBRL Instance Document
101.SCH*	*
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*	XBRL Taxonomy Extension Label Linkbase Document
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document

* Filed herewith

** Furnished herewith 

† Management contract or compensatory plan in which directors and/or executive officers are eligible to participate

The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	MEDLEY MANAGEMENT INC.
	(Registrant)
Date: November 16, 2020	By:	/s/ Richard T. Allorto, Jr.
		Richard T. Allorto Jr.
		Chief Financial Officer of Medley Management Inc.

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EX-10.1

Exhibit 10.1

August 14, 2020

VIA E-MAIL

John D. Fredericks

Re: Terms of Separation

Dear John:

This letter confirms the agreement (this “Agreement”) between you and Medley LLC (the “Company”) regarding the terms of your separation and offers you certain separation benefits in exchange for your agreement to the obligations set forth below and your other promises herein.

1.Separation Date. August 11, 2020 was your last day of service as a Member of the Company for all purposes except for purposes under those certain Award Agreements granted by the Company in favor of you (the “Separation Date”). Except as specifically provided in this Agreement, you will remain a unitholder at Medley LLC and Medley Group LLC with all of the rights and obligations attendant thereto under the various agreements between Medley and you.

2.Resignation From Officer and Service Provider Positions: By your signature below and the resignation letter attached hereto as Exhibit A, you acknowledge that, effective as of the Separation Date, you resigned (i) from any and all officer positions with the Company, Medley Management Inc. and all of their direct and indirect subsidiaries (collectively, the “Medley Group Companies”; for avoidance of doubt, the Medley Group Companies shall not include Medley Capital Corporation (“MCC”) or Sierra Income Corporation (“SIC”)), including without limitation as General Counsel, Secretary and Chief Compliance Officer of:

Medley LLC	Medley (Aspect) B GP LLC
Medley Management Inc.	MCC Advisors LLC
Medley Seed Funding I LLC	MCOF Management LLC
Medley Seed Funding II LLC	Medley (Aspect) Management LLC
Medley Seed Funding IIII LLC	Medley Capital LLC
Medley GP Holdings LLC	Medley SMA Advisors LLC
Medley GP LLC	MOF II Management LLC
MOF II GP LLC	MOF III Management LLC
MOF III GP LLC	SIC Advisors LLC
MOF III Offshore GP LLC	SOF Advisors LLC
MCOF GP LLC	STRF Advisors LLC
Medley (Aspect) GP LLC

Notwithstanding anything to the contrary herein, for purposes of those certain Award Agreements granted by the Company in favor of you, neither termination of your services as a Member of the Company, nor your resignations as provided herein shall be deemed a termination of Service (as defined in such Award Agreements), it being understood that concurrently herewith you are entering into an engagement agreement (the “Engagement Agreement”) with the Medley Group Companies for the provision of legal services and shall continue to provide legal Services (as defined in such Award Agreements) to the Medley Group Companies for purposes of the Award Agreements, provided that, in exchange for this agreement and as an incentive to your continued service pursuant to the Engagement Agreement, you agree that the vesting schedule of your 557,874 unvested Restricted LLC Unit grants is hereby extended to February 28, 2022 and your vesting in such Restricted LLC Units is conditioned upon your continuing to provide Services in the form of at least fifty (50) hours per month of legal services pursuant to the terms of the Engagement Agreement.

Nothing in this Agreement is intended to or should be construed to have any effect on or in any way limit your continued services as Chief Compliance Officer of Medley Capital Corporation and Sierra Income Corporation.

3.Acknowledgment of Final Payments and Distributions; Expense Reimbursement; Return of Your Personal Property. The Company paid you $25,000.00 on August 5, 2020 and by your signature below, you acknowledge that upon such payment by the Company to you, the Company will have paid to you all wages, salary, bonuses, variable compensation and any similar payments due you from the Company as of the Separation Date, and that the Medley Group Companies do not owe you any other amounts, other than (a) a pro rata annual bonus on account of your services from January 1, 2020 to August 11, 2020 in an amount to be determined in accordance with the Company’s regular practices and standards, which bonus will be determined and paid in 2021 at the same time as any bonuses are determined for any other members of Medley LLC, (b) as set forth in Section 4 of this Agreement, and (c) future amounts in accordance with the Engagement Agreement. You also agree to apply $16,129.03 of the forgoing payment on account of the August 2020 retainer payment due under your engagement agreement with the Company. For avoidance of doubt, except as may otherwise be agreed to between you and MCC or SIC, you shall not receive any compensation from the Medley Group Companies on account of your continued service as a Chief Compliance Officer of SIC and MCC, nor shall anything in this agreement limit or restrain your ability to resign as a Chief Compliance Officer of SIC and MCC at any time. You agree that, within ten (10) business days after the Separation Date, you will submit your final documented expense reimbursement statement reflecting all business expenses you incurred through the Separation Date, if any, for which you seek reimbursement. The Company will reimburse you for reasonable business expenses pursuant to its regular business practice. The Company shall ship to your home address any personal property in your New York office and one suitcase together with its contents currently in storage at the SoHo Grand Hotel.

4.Health Insurance. If you timely and properly elect health continuation coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”), the Company shall pay the monthly COBRA premium for yourself and your dependents. until the earliest of: (i) February 28, 2022; (ii) the date on which you are no longer eligible to receive COBRA continuation coverage; and (iii) the date on which you receive substantially similar coverage from another employer or other source; provided, that, in the event your death occurs on or prior to February 28, 2022, then the Company will pay the cost of the monthly COBRA premiums for your dependents on the same terms. Notwithstanding the foregoing, if the Company's making payments under this Section 4 would violate the nondiscrimination rules applicable to nongrandfathered plans under the Affordable Care Act (the “ACA”), or result in the imposition of penalties under the ACA and the related regulations and guidance promulgated thereunder), the parties agree to reform this Section 4 in a manner as is necessary to comply with the ACA.

5.Restrictive Covenant Agreement. The Company hereby:

(a)agrees that the “Assignment Period” for purposes of Section 2(b) of your Confidentiality, Non- Interference, and Invention Assignment Agreement is hereby ended and disclaims any interest in any and all developments, original works of authorship, inventions, concepts, know-how, improvements, trade secrets, and similar proprietary rights, whether or not patentable or registrable under copyright or similar laws, which you may solely or jointly hereafter conceive,

(b)agrees that, notwithstanding anything to the contrary in Section 3 of the Confidentiality, Non- Interference, and Invention Assignment Agreement, as outside legal counsel to the Medley Group Companies pursuant to the terms of the Engagement Agreement, you may continue to retain all Confidential Information and all other documents, materials, information, and property developed by you pursuant to you services as a Member or otherwise belonging to the Company in accordance with the terms of the Engagement Agreement,

(c)transfers title to and agrees that, notwithstanding anything to the contrary in Section 4 of the Confidentiality, Non- Interference, and Invention Assignment Agreement, you may keep all Company property in your possession, including one desktop computer and external monitors, two laptop computers, an HP printer, and a CISCO IP phone,

(d)releases you from the non- compete provision in Section 5(a) of your Confidentiality, Non- Interference, and Invention Assignment Agreement,

(e)notwithstanding anything to the contrary in Section 9 of the Confidentiality, Non- Interference, and Invention Assignment Agreement, agrees to compensate you in accordance with the terms of the Engagement Agreement with respect to any services you may provide in the future in connection with any investigation, administrative proceeding, or litigation relating to any matter that occurred during your services in which I was involved or of which I have knowledge (for avoidance of doubt, merely preparing for and providing testimony as a percipient witness in connection with any such investigation, administrative proceeding, or litigation matter shall not be deemed “services” or entitled to compensation),

(f)the Confidentiality, Non- Interference, and Invention Assignment Agreement superseded in its entirety the restrictive covenants set forth in Sections 9( a) ( Confidentiality), of the Class C Unit Award Agreement under the Amended and Restated Limited Liability Company Agreement of Medley LLC, dated as of June 1, 2013.

6.Confidentiality Obligations. You hereby acknowledge that you are bound by the confidentiality obligations set forth in Section 1 of your Restrictive Covenant Agreement, which are each incorporated herein mutatis mutandis. This Section 6 shall survive termination of this Agreement.

7.Severability. The provisions of this Agreement are severable, and if any part of it is found to be invalid or unenforceable, the other parts shall remain fully valid and enforceable.

8.Modification; Counterparts; Facsimile/PDF Signatures. It is expressly agreed that this Agreement may not be altered, amended, modified, or otherwise changed in any respect except by another written agreement that specifically refers to this Agreement, executed by authorized representatives of each of the parties to this Agreement. This Agreement may be executed in any number of counterparts, each of which shall constitute an original and all of which together shall constitute one and the same instrument. Execution of a facsimile or PDF copy shall have the same force and effect as execution of an original, and a copy of a signature will be equally admissible in any legal proceeding as if an original.

9.Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California.

10.Successors. Any successor, whether direct or indirect and whether by purchase, lease, merger, consolidation, liquidation or otherwise, to all or substantially all of the Company’s business and/or assets shall assume the obligations under this Agreement and shall perform the obligations under this Agreement in the same manner and to the same extent as the Company would be required to perform such obligations in the absence of a succession. The terms of this Agreement and all of your rights hereunder shall inure to the benefit of, and be enforceable by, your personal or legal representatives, executors, administrators, successors, heirs, devisees and legatees.

11.Review of Agreement. You understand that you may take up to twenty-one (21) days to consider this Agreement (the “Review Period”) and, by signing below, affirm that you were advised to consult with an attorney prior to signing this Agreement. You also understand you may revoke this Agreement within seven (7) days of signing this document.

12.Effective Date. This Agreement is effective on the eighth (8th) day after you sign it and without revocation by you (the “Effective Date”).

Sincerely,

Medley LLC

By:    /s/ Richard T. Allorto        Date: August 14, 2020

Name: Richard T. Allorto

Title: Chief Financial Officer

UNDERSTOOD AND AGREED:

By:    /s/ John D. Fredericks        Date: August 14, 2020

John D. Fredericks

Exhibit A

Resignation Letter

August 11, 2020

VIA E-MAIL

Brook Taube

c/o Medley LLC

280 Park Avenue, 6th Floor East

New York, NY 10017

Re: Resignation

Dear Brook:

Effective as of the date written above, I hereby voluntarily resign from any and all officer positions with Medley LLC, Medley Management Inc. and all of their direct and indirect subsidiaries (collectively, the “Medley Group Companies”), including without limitation as General Counsel, Secretary and Chief Compliance Officer of:

Medley LLC	Medley (Aspect) B GP LLC
Medley Management Inc.	MCC Advisors LLC
Medley Seed Funding I LLC	MCOF Management LLC
Medley Seed Funding II LLC	Medley (Aspect) Management LLC
Medley Seed Funding IIII LLC	Medley Capital LLC
Medley GP Holdings LLC	Medley SMA Advisors LLC
Medley GP LLC	MOF II Management LLC
MOF II GP LLC	MOF III Management LLC
MOF III GP LLC	SIC Advisors LLC
MOF III Offshore GP LLC	SOF Advisors LLC
MCOF GP LLC	STRF Advisors LLC
Medley (Aspect) GP LLC

For the avoidance of doubt, upon my resignation in accordance with this letter, I shall remain as Chief Compliance Officer of Medley Capital Corporation and Sierra Income Corporation.

Sincerely,

/s/ John D. Fredericks

cc:    Seth Taube

Richard T. Allorto

Nathan Bryce

EX-31.1

CERTIFICATION OF CO-CHIEF EXECUTIVE OFFICER

I, Brook Taube, certify that:    

1. I have reviewed this Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2020 of Medley LLC.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

By:	/s/ Brook Taube
	Brook Taube
	Co-Chief Executive Officer and Co-Chairman
	(Co-Principal Executive Officer)
	November 16, 2020

EX-31.2

CERTIFICATION OF CO-CHIEF EXECUTIVE OFFICER

I, Seth Taube, certify that:    

1. I have reviewed this Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2020 of Medley LLC;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

By:	/s/ Seth Taube
	Seth Taube
	Co-Chief Executive Officer and Co-Chairman
	(Co-Principal Executive Officer)
	November 16, 2020

EX-31.3

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Richard T. Allorto, Jr., certify that:    

1. I have reviewed this Quarterly Report on Form 10-Q for the three and ninee months ended September 30, 2020 of Medley LLC;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

By:	/s/ Richard T. Allorto, Jr.
	Richard T. Allorto, Jr.
	Chief Financial Officer
	(Principal Financial Officer)
	November 16, 2020

EX-32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY

ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Medley LLC (the “Company”) for the three and nine months ended September 30, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Brook Taube, Co-Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

By:	/s/ Brook Taube
	Brook Taube
	Co-Chief Executive Officer and Co-Chairman
	(Co-Principal Executive Officer)

November 16, 2020

A signed original of this certification required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate disclosure document.

EX-32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY

ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Medley LLC (the “Company”) for the three and nine months ended September 30, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Seth Taube, Co-Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

By:	/s/ Seth Taube
	Seth Taube
	Co-Chief Executive Officer and Co-Chairman
	(Co-Principal Executive Officer)

November 16, 2020

A signed original of this certification required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate disclosure document.

EX-32.3

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY

ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Medley LLC (the “Company”) for the three and nine months ended September 30, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Richard T. Allorto, Jr., Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

By:	/s/ Richard T. Allorto, Jr.
	Richard T. Allorto, Jr.
	Chief Financial Officer
	(Principal Financial Officer)

November 16, 2020

A signed original of this certification required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate disclosure document.

XML

Document And Entity Information - shares	9 Months Ended
	Sep. 30, 2020	Nov. 10, 2020
Cover [Abstract]
Entity Registrant Name	Medley LLC
Entity Central Index Key	0001536577
Current Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer
Document Type	10-Q
Document Period End Date	Sep. 30, 2020
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q3
Amendment Flag	false
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Shell Company	false
Entity Emerging Growth Company	false
Entity Small Business	true
Entity Common Stock, Shares Outstanding		3,063,441

XML

Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Assets
Cash and cash equivalents	$ 5,823	$ 10,377
Investments, at fair value	9,637	13,287
Management fees receivable	5,799	8,104
Right-of-use assets under operating leases	5,206	6,564
Other assets	10,073	9,727
Total Assets	36,538	48,059
Liabilities, Redeemable Non-controlling Interests and Members' Deficit
Senior unsecured debt, net	118,958	118,382
Loans payable	10,000	10,000
Due to former minority interest holder, net	7,233	8,145
Operating lease liabilities	7,420	8,267
Accounts payable, accrued expenses and other liabilities	25,942	21,886
Total Liabilities	169,553	166,680
Commitments and Contingencies (Note 12)
Redeemable Non-controlling Interests	0	(748)
Members' Deficit
Members' Capital	(132,538)	(117,482)
Non-controlling interests in consolidated subsidiaries	(477)	(391)
Total deficit	(133,015)	(117,873)
Total Liabilities, Redeemable Non-controlling Interests and Members' Deficit	$ 36,538	$ 48,059

XML

Condensed Consolidated Statements of Operations - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Revenues
Revenues	$ 7,910	$ 12,228	$ 26,076	$ 38,459
Investment income (loss):
Carried interest	(3)	(142)	83	651
Other investment income (loss), net	419	(550)	(1,384)	(922)
Total Revenues	8,326	11,536	24,775	38,188
Expenses
Compensation and benefits	4,040	7,090	17,119	22,069
General, administrative and other expenses	3,599	5,403	11,682	12,763
Total Expenses	7,639	12,493	28,801	34,832
Other Income (Expenses)
Dividend income	0	182	137	942
Interest expense	(2,535)	(2,874)	(7,950)	(8,646)
Other (expenses) income, net	(167)	1,768	(5,592)	(641)
Total expenses, net	(2,702)	(924)	(13,405)	(8,345)
Loss before income taxes	(2,015)	(1,881)	(17,431)	(4,989)
Benefit from income taxes	(51)	(28)	(392)	(71)
Net Loss	(1,964)	(1,853)	(17,039)	(4,918)
Net income (loss) attributable to non-controlling interests	1	1,619	60	140
Net Loss Attributable to Medley LLC	(1,965)	(3,472)	(17,099)	(5,058)
Management fees
Revenues
Revenues	6,275	9,607	19,807	30,728
Other revenues and fees
Revenues
Revenues	$ 1,635	$ 2,621	$ 6,269	$ 7,731

XML

Condensed Consolidated Statements of Operations (Parenthetical) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Income Statement [Abstract]
Incentive fees	$ 0	$ 0	$ 0	$ 0

XML

Condensed Consolidated Statements of Changes in Equity - USD ($) $ in Thousands	Total	Accumulated Deficit	Non-controlling Interests Consolidated Subsidiaries
Beginning balance at Dec. 31, 2018	$ (110,728)	$ (109,981)	$ (747)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net loss attributable to Medley Management Inc.	(5,058)
Net loss	(4,597)	(5,058)	461
Contributions	4,716	4,716
Distributions	(1,192)	(969)	(223)
Reclassification of cumulative dividends on forfeited restricted stock units to compensation and benefits expense	336	336
Ending balance at Sep. 30, 2019	(111,465)	(110,956)	(509)
Beginning balance at Jun. 30, 2019	(109,432)	(109,016)	(416)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net loss attributable to Medley Management Inc.	(3,472)
Net loss	(3,565)	(3,472)	(93)
Contributions	1,495	1,495
Reclassification of cumulative dividends on forfeited restricted stock units to compensation and benefits expense	37	37
Ending balance at Sep. 30, 2019	(111,465)	(110,956)	(509)
Beginning balance at Dec. 31, 2019	(117,873)	(117,482)	(391)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net loss attributable to Medley Management Inc.	(17,099)
Net loss	(17,035)		64
Contributions	2,821	2,821
Distributions	(551)	(401)	(150)
Fair value adjustment to redeemable non-controlling interests (Note 17)	(752)	(752)
Reclassification of cumulative dividends on forfeited restricted stock units to compensation and benefits expense	375	375
Ending balance at Sep. 30, 2020	(133,015)	(132,538)	(477)
Beginning balance at Jun. 30, 2020	(132,122)	(131,758)	(364)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net loss attributable to Medley Management Inc.	(1,965)
Net loss	(1,964)		1
Contributions	1,185	1,185
Distributions	(114)	0	(114)
Ending balance at Sep. 30, 2020	$ (133,015)	$ (132,538)	$ (477)

XML

Condensed Consolidated Statements of Cash Flows (unaudited) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Cash flows from operating activities
Net loss	$ (17,039)	$ (4,918)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Stock-based compensation	2,946	5,227
Amortization of debt issuance costs	519	580
Accretion of debt discount	720	994
Benefit from deferred taxes	0	(36)
Depreciation and amortization	539	528
Net unrealized depreciation on investments	1,288	1,368
Losses (income) from equity method investments	330	(257)
Reclassification of cumulative dividends paid on forfeited restricted stock units to compensation and benefits expense	375	336
Non-cash lease costs	1,823	1,823
Other non-cash amounts	330	0
Changes in operating assets and liabilities:
Management fees receivable	2,305	1,748
Income distributions received from equity method investments	772	648
Purchase of investments	0	(706)
Sale of investments	95	822
Other assets	(872)	(234)
Operating lease liabilities	(1,313)	(2,042)
Accounts payable, accrued expenses and other liabilities	5,339	(4,457)
Net cash (used in) provided by operating activities	(1,843)	1,424
Cash flows from investing activities
Purchases of fixed assets	(16)	(37)
Distributions received from investment held at cost less impairment	27	222
Decrease in cash resulting from the deconsolidation of STRF	(471)	0
Capital contributions to equity method investments	0	(3)
Net cash (used in) provided by investing activities	(460)	182
Cash flows from financing activities
Payments to former minority interest holder	(1,575)	(3,500)
Distributions to members, non-controlling interests and redeemable non-controlling interests	(551)	(3,554)
Payments of tax withholdings related to net share settlement of restricted stock units	(125)	(511)
Net cash used in financing activities	(2,251)	(7,565)
Net decrease in cash and cash equivalents	(4,554)	(5,959)
Cash and cash equivalents, beginning of period	10,377	16,970
Cash and cash equivalents, end of period	5,823	11,011
Supplemental cash flow information
Recognition of right-of-use assets under operating leases upon adoption of new leasing standard	0	8,233
Recognition of operating lease liabilities arising from obtaining right-of-use assets under operating leases upon adoption of new leasing standard	0	10,229
Accretion of operating lease liabilities recorded against right-of-use assets	0	586
Fair value adjustment to redeemable non-controlling interest in STRF Advisors LLC (Note 17)	$ 752	$ 0

XML

ORGANIZATION AND BASIS OF PRESENTATION

9 Months Ended

Sep. 30, 2020

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Organization and Basis of Presentation

ORGANIZATION AND BASIS OF PRESENTATION

Medley LLC is an alternative asset management firm offering yield solutions to retail and institutional investors. The Company's national direct origination franchise provides capital to the middle market in the United States of America. Medley LLC, provides investment management services to permanent capital vehicles, long-dated private funds and separately managed accounts and serves as the general partner to the private funds, which are generally organized as pass-through entities. Medley LLC and its consolidated subsidiaries (collectively “Medley” or the “Company”) is headquartered in New York City.

Medley's business is currently comprised of only one reportable segment, the investment management segment, and substantially all of the Company operations are conducted through this segment. The investment management segment provides investment management services to permanent capital vehicles, long-dated private funds and separately managed accounts. The Company conducts its investment management business in the U.S., where substantially all its revenues are generated.

Registered Public Offering of Medley Notes

On August 9, 2016, Medley LLC completed a registered public offering of $25.0 million of an aggregate principal amount of 6.875% senior notes due 2026 (the "2026 Notes") at a public offering price of 100% of the principal amount. On October 18, 2016, Medley LLC completed a public offering of an additional $28.6 million in aggregate principal amount of the 2026 Notes at a public offering price of $24.45 for each $25.00 principal amount of notes. The notes mature on August 15, 2026 and interest is payable quarterly. The notes will be redeemable in whole or in part at Medley's option on or after August 15, 2019 at a redemption price of 100% of the aggregate principal amount plus accrued and unpaid interest payments. The Company used the net proceeds from the offering to repay a portion of the outstanding indebtedness under its term loan facility with Credit Suisse, which was terminated in February 2017. The 2026 Notes are listed on the New York Stock Exchange and trades thereon under the trading symbol “MDLX.”

On January 18, 2017, Medley LLC completed a registered public offering of $34.5 million of an aggregate principal amount of 7.25% senior notes due 2024 (the “2024 Notes”) at a public offering price of 100% of the principal amount. On February 22, 2017, Medley LLC completed a public offering of an additional $34.5 million in aggregate principal amount of the 2024 Notes at a public offering price of $25.25 for each $25.00 principal amount of notes. The 2024 Notes mature on January 30, 2024 and interest is payable quarterly commencing on April 30, 2017. The notes will be redeemable in whole or in part at Medley's option on or after January 30, 2020 at a redemption price of 100% of the aggregate principal amount plus accrued and unpaid interest payment. The Company used the net proceeds from the offering to repay the remaining outstanding its term loan facility with Credit Suisse, which was terminated in February 2017, and for general corporate purposes. The 2024 Notes are listed on the New York Stock Exchange and trade thereon under the trading symbol “MDLQ.”

Medley LLC Reorganization

In connection with the IPO of Medley Management Inc.“MDLY”, Medley LLC amended and restated its limited liability agreement to modify its capital structure by reclassifying the 2,333,333 interests, as adjusted for the reverse split mentioned below, held by the pre-IPO members into a single new class of units (“LLC Units”). The pre-IPO members also entered into an exchange agreement under which they (or certain permitted transferees thereof) have the right, subject to the terms of an exchange agreement, to exchange their LLC Units for shares of Medley Management Inc.’s Class A common stock on a one-for-one basis, subject to customary conversion rate adjustments for stock splits, stock dividends and reclassifications. In addition, pursuant to the amended and restated limited liability agreement, Medley Management Inc. became the sole managing member of Medley LLC.

Reverse Split of LLC Units

On October 30, 2020, MDLY effected a reverse stock split at a ratio of 1-for-10 of all classes of its common stock. As a result of the reverse stock split, each ten shares of MDLY's outstanding common stock were combined into one share of the respective class of common stock without any change to the par value per share. In accordance with the organization agreement entered into by MDLY and Medley LLC in connection with the IPO of MDLY, the Company's LLC Units were also adjusted at a ratio of 1-for-10 simultaneously with the reverse stock split of MDLY common stock.

As a result of this reverse stock split, all references in these consolidated financial statements and notes thereto to MDLY common share amounts and the Company's LLC Units reflect the effect of the reverse stock split.

Termination of Agreement and Plan of Merger

On July 29, 2019, MDLY entered into the Amended and Restated Agreement and Plan of Merger, dated as of July 29, 2019 (the “Amended MDLY Merger Agreement”), by and among MDLY, Sierra Income Corporation (“Sierra”), and Sierra Management, Inc., a wholly owned subsidiary of Sierra (“Merger Sub”), pursuant to which MDLY would have, on the terms and subject to the conditions set forth in the Amended MDLY Merger Agreement, merged with and into Merger Sub, with Merger Sub as the surviving company in the merger (the “MDLY Merger”). In addition, on July 29, 2019, Medley Capital Corporation (“MCC”) and Sierra entered into the Amended and Restated Agreement and Plan of Merger, dated as of July 29, 2019 (the “Amended MCC Merger Agreement”), by and between MCC and Sierra, pursuant to which MCC would have, on the terms and subject to the conditions set forth in the Amended MCC Merger Agreement, merged with and into Sierra, with Sierra as the surviving company in the merger (the “MCC Merger”).

On May 1, 2020, MDLY received a written notice of termination from Sierra in accordance with Sections 9.1 and 10.2 of the Amended MDLY Merger Agreement. Section 9.1(c) of the Amended MDLY Merger Agreement permits both MDLY and Sierra to terminate the Amended MDLY Merger Agreement if the MDLY Merger had not been consummated on or before March 31, 2020 (the “Outside Date”).

As a result, the Amended MDLY Merger Agreement had been terminated effective as of May 1, 2020. Sierra terminated the Amended MDLY Merger Agreement effective as of May 1, 2020 as the Outside Date had passed and the MDLY Merger had not been consummated. Representatives of Sierra informed MDLY that in determining to terminate the Amended MDLY Merger Agreement, Sierra considered a number of factors, including, among other factors, changes in the relative valuation of MDLY and Sierra, the changed circumstances and the unpredictable economic conditions resulting from the global health crisis caused by the coronavirus (COVID-19) pandemic, and the uncertainty regarding the parties’ ability to satisfy the conditions to closing the MDLY Merger in a timely manner.

In addition, on May 1, 2020, MCC received a notice of termination from Sierra of the Amended MCC Merger Agreement. Under the Amended MCC Merger Agreement, either party may have, subject to certain conditions, terminated the Amended MCC Merger Agreement if the MCC Merger was not consummated by March 31, 2020. Sierra elected to do so on May 1, 2020. Representatives of Sierra informed MCC that in determining to terminate the Amended MCC Merger Agreement, Sierra considered a number of factors, including, among other factors, changes in the relative valuation of MCC and Sierra, the changed circumstances and the unpredictable economic conditions resulting from the global health crisis caused by the COVID-19 pandemic, and the uncertainty regarding the parties’ ability to satisfy the conditions to closing the MCC Merger in a timely manner.

Transaction expenses related to the MDLY Merger are included in general, administrative and other expenses and consist primarily of professional fees. Such expenses amounted to $1.0 million and $2.1 million for the three months ended September 30, 2020 and 2019, respectively, and $3.5 million for each of the nine months ended September 30, 2020 and 2019.

Basis of Presentation

The accompanying consolidated financial statements have been prepared on the accrual basis of accounting in conformity with U.S. generally accepted accounting principles (“GAAP”) and includes the accounts of Medley LLC and its consolidated subsidiaries. Intercompany balances and transactions have been eliminated in consolidation.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Sep. 30, 2020

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

In accordance with Accounting Standards Codification (“ASC”) 810, Consolidation, the Company consolidates those entities where it has a direct and indirect controlling financial interest based on either a variable interest model or voting interest model. As such, the Company consolidates entities that the Company concludes are variable interest entities (“VIEs”), for which the Company is deemed to be the primary beneficiary and entities in which it holds a majority voting interest or has majority ownership and control over the operational, financial and investing decisions of that entity.

For legal entities evaluated for consolidation, the Company must determine whether the interests that it holds and fees paid to it qualify as a variable interest in an entity. This includes an evaluation of the management fee and performance fee paid to the Company when acting as a decision maker or service provider to the entity being evaluated. If fees received by the Company are customary and commensurate with the level of services provided, and the Company does not hold other economic interests in the entity that would absorb more than an insignificant amount of the expected losses or returns of the entity, the interest that the Company holds would not be considered a variable interest. The Company factors in all economic interests including proportionate interests through related parties, to determine if fees are considered a variable interest.

An entity in which the Company holds a variable interest is a VIE if any one of the following conditions exist: (a) the total equity investment at risk is not sufficient to permit the legal entity to finance its activities without additional subordinated financial support, (b) the holders of the equity investment at risk have the right to direct the activities of the entity that most significantly impact the legal entity’s economic performance, or (c) the voting rights of some investors are disproportionate to their obligation to absorb losses or rights to receive returns from a legal entity. For limited partnerships and other similar entities, non-controlling investors must have substantive rights to either dissolve the fund or remove the general partner (“kick-out rights”) in order to not qualify as a VIE.

For those entities that qualify as a VIE, the primary beneficiary is generally defined as the party who has a controlling financial interest in the VIE. The Company is generally deemed to have a controlling financial interest if it has the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, and the obligation to absorb losses or receive benefits from the VIE that could potentially be significant to the VIE. The Company determines whether it is the primary beneficiary of a VIE at the time it becomes initially involved with the VIE and reconsiders that conclusion continuously. The primary beneficiary evaluation is generally performed qualitatively on the basis of all facts and circumstances. However, quantitative information may also be considered in the analysis, as appropriate. These assessments require judgment. Each entity is assessed for consolidation on a case-by-case basis. 

For those entities evaluated under the voting interest model, the Company consolidates the entity if it has a controlling financial interest. The Company has a controlling financial interest in a voting interest entity (“VOE”) if it owns a majority voting interest in the entity.

Consolidated Variable Interest Entities

As of September 30, 2020, Medley LLC had four subsidiaries, Medley Caddo Investors Holdings 1 LLC, Medley Avantor Investors LLC, Medley Cloverleaf Investors LLC and Medley Real D Investors LLC, which are consolidated VIEs. Each of these entities was organized as a limited liability company and was legally formed to either manage a designated fund or to strategically invest capital as well as isolate business risk. As of September 30, 2020, total assets and total liabilities, after eliminating entries, of these VIEs reflected in the consolidated balance sheets were $0.9 million and less than $0.1 million, respectively. As of December 31, 2019, Medley LLC had seven subsidiaries, Medley Seed Funding I LLC, Medley Seed Funding II LLC, STRF Advisors LLC, Medley Caddo Investors Holdings 1 LLC, Medley Avantor Investors LLC, Medley Cloverleaf Investors LLC and Medley Real D Investors LLC. As of December 31, 2019, total assets and total liabilities, after eliminating entries, of these VIEs reflected in the consolidated balance sheets were $1.2 million and less than $0.1 million, respectively. Except to the extent of the assets of these VIEs that are consolidated, the holders of the consolidated VIEs’ liabilities generally do not have recourse to the Company.

Seed Investments and Deconsolidation of Consolidated Fund

The Company accounts for seed investments through the application of the voting interest model under ASC 810-10-25-1 through 25-14 and consolidates a seed investment when the investment advisor holds a controlling interest, which is, in general, 50% or more of the equity in such investment. For seed investments in which the Company does not hold a controlling interest, the Company accounts for such seed investment under the equity method of accounting, at its ownership percentage of such seed investment’s net asset value.

The Company seed funded $2.1 million to Sierra Total Return Fund ("STRF"), which commenced investment operations in June 2017. Since inception through April 6, 2020, the date of deconsolidation of STRF, the Company owned 100% of the equity of STRF and, as such, consolidated STRF in its consolidated financial statements.

The condensed balance sheet of STRF as of December 31, 2019 is presented in the table below.

	As of
	December 31, 2019
Assets	(in thousands)
Cash and cash equivalents	$	682
Investments, at fair value	1,441
Other assets	29
Total assets	$	2,152
Liabilities and Equity
Accounts payable, accrued expenses and other liabilities	$	342
Equity	1,810
Total liabilities and equity	$	2,152

As of December 31, 2019, the Company's condensed consolidated balance sheet reflects the elimination of $0.2 million of other assets and $1.8 million of equity as a result of the consolidation of STRF. During the nine months ended September 30, 2020 and 2019 this fund did not generate any significant income or losses from operations.

In connection with the exercise of DB Med Investors put option right in October 2019, as further discussed in Notes 11 and 16 to these condensed consolidated financial statements, STRF filed an application with the Securities and Exchange Commission ("SEC") on December 26, 2019, and an amendment on February 24, 2020, requesting an order under section 8(f) of the Investment Company Act of 1940 (the "Act") declaring that it has ceased to be an investment company. On March 25, 2020, the SEC ordered, under the Act, that STRF's application registration under the Act shall forthwith cease to be in effect. All shares of STRF held by the Company were transferred to DB Med Investors as well as $0.1 million of remaining cash held by Medley Seed Funding II LLC on April 6, 2020, in full satisfaction of the liability due to DB Med Investors (Note 11). As a result of the transfer of STRF shares to DB Med Investors, the Company no longer consolidates STRF in its consolidated financial statements for periods subsequent to April 6, 2020.

The condensed balance sheet of STRF, as of April 6, 2020, is presented in the table below.

	As of
	April 6, 2020
Assets	(in thousands)
Cash and cash equivalents	$	471
Investments, at fair value	1,016
Other assets	76
Total assets	$	1,563
Liabilities and Equity
Accounts payable, accrued expenses and other liabilities	$	39
Equity	1,524
Total liabilities and equity	$	1,563

Non-Consolidated Variable Interest Entities

The Company holds interests in certain VIEs that are not consolidated because the Company is not deemed to be the primary beneficiary. The Company's interest in these entities is in the form of insignificant equity interests and fee arrangements. The maximum exposure to loss represents the potential loss of assets by the Company relating to these non-consolidated entities.

As of September 30, 2020, the Company recorded investments, at fair value, attributed to these non-consolidated VIEs of $2.4 million, receivables of $0.6 million included as a component of other assets and a clawback obligation of $7.2 million included as a component of accounts payable, accrued expenses and other liabilities on the Company’s consolidated balance sheets. As of December 31, 2019, the Company recorded investments, at fair value, attributed to non-consolidated VIEs of $3.0 million, receivables of $1.3 million included as a component of other assets and a clawback obligation of $7.2 million included as a component of accounts payable, accrued expenses and other liabilities on the Company’s consolidated balance sheets. As of September 30, 2020, the Company’s maximum exposure to losses from these entities is $3.0 million.

Concentration of Credit and Market Risk

In the normal course of business, the Company's underlying funds encounter significant credit and market risk. Credit risk is the risk of default on investments in debt securities, loans and derivatives that result from a borrower's or derivative counterparty's inability or unwillingness to make required or expected payments. Credit risk is increased in situations where the Company's underlying funds are investing in distressed assets or unsecured or subordinate loans or in securities that are a material part of its respective business. Market risk reflects changes in the value of investments due to changes in interest rates, credit spreads or other market factors. The Company's underlying funds may make investments outside of the United States. These non-U.S. investments are subject to the same risks associated with U.S. investments, as well as additional risks, such as fluctuations in foreign currency exchange rates, unexpected changes in regulatory requirements, heightened risk of political and economic instability, difficulties in managing the investments, potentially adverse tax consequences, and the burden of complying with a wide variety of foreign laws.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Management’s estimates are based on historical experience and other factors, including expectations of future events that management believes to be reasonable under the circumstances. These assumptions and estimates also require management to exercise judgment in the process of applying the Company’s accounting policies. Significant estimates and assumptions by management affect the carrying value of investments, deferred tax assets, performance compensation payable and certain accrued liabilities. Actual results could differ from these estimates, and such differences could be material.  

Indemnification

In the normal course of business, the Company enters into contractual agreements that provide general indemnifications against losses, costs, claims and liabilities arising from the performance of individual obligations under such agreements. The Company has not experienced any prior claims or payments pursuant to such agreements. The Company’s individual maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Company that have not yet occurred. However, based on management’s experience, the Company expects the risk of loss to be remote.

Non-Controlling Interests in Consolidated Subsidiaries

Non-controlling interests in consolidated subsidiaries represent the component of equity in such consolidated entities held by third-parties and certain employees. These interests are adjusted for contributions to and distributions from Medley entities and are allocated income or loss from Medley entities based on their ownership percentages. 

Redeemable Non-Controlling Interests

Redeemable non-controlling interests represents interests of certain third parties that are not mandatorily redeemable but redeemable for cash or other assets at a fixed or determinable price or a fixed or determinable date, at the option of the holder or upon the occurrence of an event that is not solely within the control of the Company. These interests are classified in the mezzanine section on the Company's consolidated balance sheets.

Cash and Cash Equivalents

Cash and cash equivalents include liquid investments in money market funds and demand deposits. The Company had cash balances with financial institutions in excess of Federal Deposit Insurance Corporation insured limits as of September 30, 2020 and December 31, 2019. The Company monitors the credit standing of these financial institutions and has not experienced, and has no expectations of experiencing, any losses with respect to such balances.

Investments

Investments include equity method investments that are not consolidated but over which the Company exerts significant influence. The Company measures the carrying value of its privately-held equity method investments by recording its share of the earnings or losses of its investee in the periods for which they are reported by the investee in the investee's financial statements rather than in the period in which an investee declares a dividend or distribution. For the Company's public non-traded equity method investment, it measures the carrying value of such investment at Net Asset Value ("NAV") per share. Unrealized appreciation (depreciation) resulting from changes in fair value of the equity method investments is reflected as a component of investment income in the consolidated statements of operations along with the income and expense allocations from such investments.

The carrying amounts of equity method investments are reflected in Investments, at fair value on the Company's consolidated balance sheets. As the underlying entities that the Company manages and invests in are, for U.S. GAAP purposes, primarily investment companies which reflect their investments at estimated fair value, the carrying value of the Company’s equity method investments in such entities approximates fair value. The Company evaluates its equity-method investments for impairment whenever events or changes in circumstances indicate that the carrying amounts of such investments may not be recoverable.

For presentation in its consolidated statements of cash flows, the Company treats distributions received from certain equity method investments using the cumulative earnings approach. Under the cumulative earnings approach, an investor would compare the distributions received to its cumulative equity-method earnings since inception. Any distributions received up to the amount of cumulative equity earnings would be considered a return on investment and classified in operating activities. Any excess distributions would be considered a return of investment and classified in investing activities.

Investments also include publicly traded common stock. The Company measures the fair value of its publicly traded common stock at the quoted market price on the primary market or exchange on which the underlying shares trade. Any realized gains (losses) from the sale of investments and unrealized appreciation (depreciation) resulting from changes in fair value are recorded in other income (expense), net.

Investments of Consolidated Fund

In accordance with ASC 820, Fair Value Measurements and Disclosures, the Company's consolidated fund at December 31, 2019 has categorized its investments carried at fair value, based on the priority of the valuation technique, into a three-level fair value hierarchy as discussed in Note 5. Fair value is a market-based measure considered from the perspective of the market participant who holds the financial instrument rather than an entity specific measure. Investments for which market quotations are readily available are valued at such market quotations, which are generally obtained from an independent pricing service or multiple broker-dealers or market makers. The consolidated fund weighs the use of third-party broker quotations, if any, in determining fair value based on management's understanding of the level of actual transactions used by the broker to develop the quote and whether the quote was an indicative price or binding offer. However, debt investments with remaining maturities within 60 days that are not credit impaired are valued at cost plus unamortized discount, or minus amortized premium, which approximates fair value. Investments for which market quotations are not readily available are valued at fair value as determined by the consolidated fund’s board of trustees based upon input from management and third party valuation firms. Because these investments are illiquid and because there may not be any directly comparable companies whose financial instruments have observable market values, these loans are valued using a fundamental valuation methodology, consistent with traditional asset pricing standards, that is objective and consistently applied across all loans and through time. As a result of the transfer of STRF shares to DB Med Investors on April 6, 2020, the Company no longer consolidates STRF in its consolidated financial statements.

Revenues

The Company recognizes revenue in accordance with ASC 606, Revenues from Contracts with Customers. The Company recognizes revenue under the core principle of depicting the transfer of promised goods or services to customers in an amount that reflects the consideration to which it expects to be entitled in exchange for such goods or services. To achieve this, the Company applies a five step approach: (1) identify the contract(s) with a customer, (2) identify the performance obligations within the contract, (3) determine the transaction price, (4) allocate the transaction price to the separate performance obligations and (5) recognize revenue when, or as, each performance obligation is satisfied.

Carried interest are performance-based fees that represent a capital allocation of income to the general partner or investment manager. Such fees are accounted for under ASC 323, Investments - Equity Method and Joint Ventures and, therefore, are not in the scope of ASC 606.

Management Fees

Medley provides investment management services to both public and private investment vehicles. Management fees include base management fees, other management fees, and Part I incentive fees, as described below.

Base management fees are calculated based on either (i) the average or ending gross assets balance for the relevant period, (ii) limited partners’ capital commitments to the funds, (iii) invested capital, (iv) NAV or (v) lower of cost or market value of a fund’s portfolio investments. Depending upon the contracted terms of the investment management agreement, management fees are paid either quarterly in advance or quarterly in arrears, and are recognized as earned over the period the services are provided. 

Certain management agreements provide for Medley to receive other management fee revenue derived from up front origination fees paid by the funds' and/or separately managed accounts' underlying portfolio companies. These fees are recognized when the Company becomes entitled to such fees.

Certain management agreements also provide for Medley to receive Part I incentive fee revenue derived from net investment income (excluding gains and losses) above a hurdle rate. As it relates to MCC, these fees are subject to netting against realized and unrealized losses. Part I incentive fees are paid quarterly and are recognized as earned in the period the services are provided.

Performance Fees

Performance fees are contractual fees which do not represent a capital allocation of income to the general partner or investment manager that are earned based on the performance of certain funds, typically, the Company’s separately managed accounts. Performance fees are earned based on each fund's performance during the period, subject to the achievement of minimum return levels in accordance with the respective terms set out in each fund’s investment management agreement.

Other Revenues and Fees

Medley provides administrative services to certain affiliated funds and is reimbursed for direct and allocated expenses incurred in providing such administrative services, as set forth in the respective underlying agreements. These fees are recognized as revenue in the period administrative services are rendered. Medley also acts as the administrative agent on certain deals for which Medley may earn loan administration fees and transaction fees. Medley may also earn consulting fees for providing non-advisory services related to its managed funds. These fees are recognized as revenue over the period the services are performed.

Investment Income (loss) - Carried Interest

Carried interest are performance-based fees that represent a capital allocation of income to the general partner or investment manager. Carried interest are allocated to the Company based on cumulative fund performance to date, subject to the achievement of minimum return levels in accordance with the respective terms set out in each fund’s governing documents and are accounted for under the equity method of accounting. Accordingly, these performance fees are reflected as carried interest within investment income on the Company's consolidated statements of operations and balances due for such fees are included as a part of equity method investments within Investments, at fair value on the Company's consolidated balance sheets.

The Company records carried interest based upon an assumed liquidation of that fund's net assets as of the reporting date, regardless of whether such amounts have been realized. For any given period, carried interest on the Company's consolidated statements of operations may include reversals of previously recognized carried interest due to a decrease in the value of a particular fund that results in a decrease of cumulative fees earned to date. Since fund return hurdles are cumulative, previously recognized carried interest also may be reversed in a period of appreciation that is lower than the particular fund's hurdle rate.

Carried interest received in prior periods may be required to be returned by the Company in future periods if the funds’ investment performance declines below certain levels. Each fund is considered separately in this regard and, for a given fund, carried interest can never be negative over the life of a fund. If upon a hypothetical liquidation of a fund’s investments, at their then current fair values, previously recognized and distributed carried interest would be required to be returned, a liability is established for the potential clawback obligation. During the three and nine months ended September 30, 2020, the Company received carried interest distributions of $0.1 million and $0.2 million, respectively. Prior to these distributions, the Company received a carried interest distribution of $0.3 million from one of its managed funds, which had been fully liquidated as of December 31, 2019. In addition to thereceipt of these distributions, the Company has also received tax distributions related to the Company’s allocation of net income, which included an allocation of carried interest. Pursuant to the organizational documents of each respective fund, a portion of these tax distributions may be subject to clawback. As of September 30, 2020 and December 31, 2019, the Company had accrued $7.2 million for clawback obligations that would need to be paid if the funds were liquidated at fair value as of the end of the reporting period. The Company’s actual obligation, however, would not become payable or realized until the end of a fund’s life.

During each of the three and nine months ended September 30, 2020 and 2019, the the Company recorded reversals of previously recognized carried interest of $0.1 million.

Investment Income (loss) - Other

Other investment income is comprised of unrealized appreciation (depreciation) resulting from changes in fair value of the Company's equity method investments in addition to the income and expense allocations from such investments.

Stock-based Compensation

Stock-based compensation expense relating to equity based awards are measured at fair value as of the grant date, reduced for actual forfeitures in the period they occur, and expensed over the requisite service period on a straight-line basis as a component of compensation and benefits on the Company's consolidated statements of operations.

Income Taxes

The Company accounts for income taxes using the asset and liability approach, which requires the recognition of tax benefits or expenses for temporary differences between the financial reporting and tax basis of assets and liabilities. A valuation allowance is established when necessary to reduce deferred tax assets to the amounts expected to be realized. The Company also recognizes a tax benefit from uncertain tax positions only if it is “more likely than not” that the position is sustainable based on its technical merits. The Company’s policy is to recognize interest and penalties on uncertain tax positions and other tax matters as a component of its provision for income taxes. For interim periods, the Company accounts for income taxes based on its estimate of the effective tax rate for the year. Discrete items and changes in its estimate of the annual effective tax rate are recorded in the period in which they occur.

As the Company is treated as a partnership for income tax purposes, it is not subject to U.S. federal, state and local income taxes since all income, gains and losses are passed through to its members. However, a portion of taxable income from Medley LLC and its subsidiaries are subject to New York City's unincorporated business tax, which is included in the Company's provision for income taxes.

Recently Issued Accounting Pronouncements Adopted as of January 1, 2020

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. This ASU modifies the disclosure requirements in Topic 820, Fair Value Measurement, by removing certain disclosure requirements related to the fair value hierarchy, modifying existing disclosure requirements related to measurement uncertainty, and adding new disclosure requirements. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. The Company adopted this ASU effective January 1, 2020 and the impact was not material.

In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force). This ASU aligns the accounting for costs incurred to implement a cloud computing arrangement that is a service arrangement with the guidance on capitalizing costs associated with developing or obtaining internal-use software. It addresses when costs should be capitalized rather than expensed, the term to use when amortizing capitalized costs, and how to evaluate the unamortized portion of these capitalized implementation costs for impairment. This ASU also includes guidance on how to present implementation costs in the financial statements and creates additional disclosure requirements. The accounting for the service element of a hosting arrangement that is a service contract is not affected by these amendments. Early adoption is permitted and can be applied either retrospectively or prospectively. The Company adopted this ASU on January 1, 2020 and has applied this new ASU on a prospective basis, and the impact was not material.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.

The guidance in this ASU clarifies and amends existing guidance. It is effective for public entities for annual reporting periods beginning after December 15, 2020 and interim periods within those reporting periods, with early adoption permitted. The Company adopted this guidance on January 1, 2020 and the impact was not material.

Recently Issued Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments in this ASU require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts and requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The amendments in this ASU are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. This ASU is effective for the Company on January 1, 2021 and will be adopted prospectively. The Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.

The Company does not believe any other recently issued, but not yet effective, revisions to authoritative guidance will have a material effect on its consolidated balance sheets, results of operations or cash flows.

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REVENUES FROM CONTRACTS WITH CUSTOMERS

9 Months Ended

Sep. 30, 2020

Revenue from Contract with Customer [Abstract]

Revenues from Contracts with Customers

REVENUES FROM CONTRACTS WITH CUSTOMERS

The majority of the Company's revenues are derived from investment management and advisory contracts that are accounted for in accordance with ASC 606.

Performance Obligations

Performance obligations are the unit of account under the revenue recognition standard and represent the distinct goods or services that are promised to the customer. The majority of the Company's contracts have a single performance obligation to provide asset management, advisory and other related services to permanent capital vehicles, long-dated private funds and separately managed accounts. The Company also has a separate performance obligation to act as an agent for certain third party lenders and provide loan administration services to certain borrowers. These loan administration services also represent a single performance obligation.

The Company primarily provides investment management services to a fund by managing the fund’s investments and maximizing returns on those investments. The Company’s asset management, advisory and other related services are transferred over time to the customer on a day-to-day basis. The contracts with each fund create a distinct performance obligation for each quarter the Company provides the promised services to the customer, from which the customer can benefit from each individual quarter of service. Furthermore, each quarter of the promised services is considered separately identifiable because there is no integration of the promised services between quarters, each quarter does not modify services provided prior to that quarter, and the services provided are not interdependent or interrelated. Most services provided to these funds are provided continuously over the contract period, so the services in the contract generally represent a single performance obligation comprising a series of distinct service periods. A contract’s transaction price is allocated to the series of distinct services that constitute a single performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.

The management fees earned by the Company are largely dependent on fluctuations in the market and, thus, the determination of such fees is highly susceptible to factors outside the Company's influence. Management fees typically have a large number and broad range of possible consideration amounts and historical experience is generally not indicative of future performance of the market. Hence, the Company is applying the exemption provided under the new revenue recognition guidance as the Company is unable to estimate the aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied and the variable consideration is allocated entirely to a wholly unsatisfied performance obligation.

Reimbursement of certain expenses incurred on behalf of the Company's funds are reported on a gross basis on the statements of operations if the Company is determined to be acting as the principal in those transactions.

Significant Judgments

The Company's contracts with customers generally include a single performance obligation to provide asset management, advisory and other related services on a quarterly basis. Revenues are recognized as such performance obligation is satisfied and the constraint on the management fees is lifted on a quarterly basis, hence, the Company does not need to exercise significant judgments in regards to management fees. Consideration for management fees is received on a quarterly basis as the performance obligations are satisfied.

With respect to performance fees based on the economic performance of its SMAs, significant judgment is required when determining recognition of revenues. Such judgments include:

• whether the fund is near final liquidation

• whether the fair value of the remaining assets in the fund is significantly in excess of the threshold at which the Company would earn an incentive fee

• the probability of significant fluctuations in the fair value of the remaining assets

• whether the SMA’s remaining investments are under contract for sale with contractual purchase prices that would result in no clawback and it is highly likely that the contracts will be consummated

As such, the Company will consider the above factors at each reporting period to determine whether there is an amount of the SMA performance fees which should be recognized as revenue because it is probable that there will not be a significant future revenue reversal, hence, the “constraint” on the performance fees has been lifted.

The Company accounts for performance fees which represent capital allocations to the general partner or investment manager pursuant to accounting rules relating to investments accounted for under the equity method of accounting. As such, these types of performance fees are not within the scope of the new revenue recognition standard and the above significant judgments and constraints do not apply to them. Refer to Note 2, “Summary of Significant Accounting Policies,” and Note 4, “Investments,” for additional information.

Revenue by Category

The following table presents the Company's revenue from contracts with customers disaggregated by type of customer for the three and nine months ended September 30, 2020:

	Permanent Capital Vehicles		Long-dated Private Funds		SMAs		Other		Total
	(in thousands)
For the three months ended September 30, 2020
Management fees	$	4,045	$	1,097	$	1,133	$	—	$	6,275
Other revenues and fees	1,192		—		—		443		1,635
Total revenues from contracts with customers	$	5,237	$	1,097	$	1,133	$	443	$	7,910
For the nine months ended September 30, 2020
Management fees	$	12,855	$	3,633	$	3,319	$	—	$	19,807
Other revenues and fees	4,426		—		—		1,843		6,269
Total revenues from contracts with customers	$	17,281	$	3,633	$	3,319	$	1,843	$	26,076

Management fees in the table above are presented net of expense support payments under an expense support agreement entered into by the Company and MCC which became effective on June 1, 2020 (See Note 13). During the three and nine months ended September 30, 2020 such amounts were $0.4 million and $0.7 million respectively. In determining whether the expenses under the expense support agreement should be recorded on a gross or net basis on its consolidated statements of operations the Company followed the contract modification guidance in ASC 606. As the expense support agreement changes the existing enforceable rights and obligations of the parties to the original contract, the expense support agreement represents an agreed-upon change in the transaction price, and as such, is presented on a net basis within management fees on the Company's condensed consolidated statement of operations.

The following table presents the Company's revenue from contracts with customers disaggregated by type of customer for the three and nine months ended September 30, 2019:

	Permanent Capital Vehicles		Long-dated Private Funds		SMAs		Other		Total
	(in thousands)
For the three months ended September 30, 2019
Management fees	$	6,593	$	1,616	$	1,398	$	—	$	9,607
Other revenues and fees	2,075		—		—		546		2,621
Total revenues from contracts with customers	$	8,668	$	1,616	$	1,398	$	546	$	12,228
For the nine months ended September 30, 2019
Management fees	$	21,144	$	5,185	$	4,399	$	—	$	30,728
Other revenues and fees	5,327		—		—		2,404		7,731
Total revenues from contracts with customers	$	26,471	$	5,185	$	4,399	$	2,404	$	38,459

Other revenues and fees reflected in the tables above consist of: (i) revenues earned under administration agreements, as described in Note 13, (ii) revenues earned by Medley while serving as loan administrative agent on certain deals, including loan administration fees and transaction fees, (iii) reimbursable origination and deal related expenses, (iv) reimbursable entity formation and organizational expenses and (v) consulting fees for providing non-advisory services related to one of the Company's managed funds.

The Company's asset management, advisory and other related services are transferred over time and the Company recognizes these revenues over the period of time these services are provided.

Contract Balances

For certain customers, the Company has a performance obligation to provide loan administration services. The timing of revenue recognition may differ from the timing of invoicing to such customers or receiving consideration. For the majority of these services cash deposits are received prior to the performance obligation being met. The performance obligation of acting as a loan administrator is satisfied over time; therefore, the Company defers any payments received upfront as deferred revenue and recognizes revenue on a pro-rata basis over time as the loan administrative services are performed.

These contract liabilities are reported as deferred revenue within accounts payable, accrued expenses and other liabilities on the Company's condensed consolidated balance sheets and were $0.2 million as of September 30, 2020 and December 31, 2019. During the three months ended September 30, 2020 and 2019, the Company recognized revenue from amounts included in deferred revenue of $0.1 million and $0.2 million, respectively, and received cash deposits of $0.1 million and $0.2 million, respectively. During the nine months ended September 30, 2020 and 2019, the Company recognized revenue from amounts included in deferred revenue of $0.4 million and $0.5 million, respectively, and received cash deposits of $0.3 million for each of those periods.

The Company did not have any contract assets as of September 30, 2020 or December 31, 2019.

Assets Recognized for the Costs to Obtain or Fulfill a Contract

As part of providing investment management services to a fund, the Company might incur certain placement fees to third parties for obtaining new investors for the fund. Any placement fees incurred to third party placement agents for placing investors into a fund are variable as it is based on a percentage of future fees and cannot be reasonably estimated. The Company determined that placement fees which are paid in cash over time as fees are earned, do not relate to a new contract at the time the payment is made. These costs do not represent a cost to obtain a new contract but rather a cost to fulfill an existing contract. The Company does not recognize any assets for the incremental costs of obtaining or fulfilling a contract with a customer and expenses placement fees as incurred.

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INVESTMENTS

9 Months Ended

Sep. 30, 2020

Schedule of Investments [Abstract]

Investments

INVESTMENTS

Investments consist of the following:

	As of
	September 30, 2020		December 31, 2019
	(in thousands)
Equity method investments, at fair value	$	9,589	$	11,650
Investment held at cost less impairment	48		196
Investments of consolidated fund	—		1,441
Total investments, at fair value	$	9,637	$	13,287

Equity Method Investments

Medley measures the carrying value of its public non-traded equity method investment in Sierra Income Corporation (“SIC” or “Sierra”), a related party, at NAV per share. Unrealized appreciation (depreciation) resulting from changes in NAV per share is reflected as a component of other investment (loss) income, net on the Company's condensed consolidated statements of operations. The carrying value of the Company’s privately-held equity method investments is determined based on the amounts invested by the Company plus the equity in earnings or losses of the investee allocated based on the respective underlying agreements, less distributions received.

The Company evaluates its equity method investments for impairment whenever events or changes in circumstances indicate that the carrying amounts of such investments may not be recoverable. There were no impairment losses recorded during the three and nine months ended September 30, 2020 and 2019.

The Company's equity method investment in shares of Sierra was $5.4 million and $6.4 million as of September 30, 2020 and December 31, 2019, respectively. The remaining balance as of September 30, 2020 and December 31, 2019 relates primarily to the Company’s investments in Medley Opportunity Fund II, LP (“MOF II”), Medley Opportunity Fund III LP (“MOF III”), Medley Opportunity Fund Offshore III LP (“MOF III Offshore”) and Aspect-Medley Investment Platform B LP (“Aspect B”).

For performance fees earned which represent a capital allocation to the general partner or investment manager, the Company accounts for them under the equity method of accounting. As of September 30, 2020 and December 31, 2019, the balance due to the Company for such performance fees was $0.8 million and $0.9 million, respectively. Revenues associated with these performance fees are classified as carried interest within investment income (loss) on the Company's condensed consolidated statements of operations.

The entities in which the Company's investments are accounted for under the equity method are considered to be related parties.

Investment Held at Cost Less Impairment

The Company measures its investment in CK Pearl Fund, LP at cost less impairment, adjusted for observable price changes for an identical or similar investment of the same issuer as well as any distributions received during the period. The Company performs a quantitative and qualitative assessment at each reporting date to determine whether the investment is impaired and an impairment loss equal to the difference between the carrying value and fair value is recorded within other income (expenses), net on the Company's condensed consolidated statement of operations if an impairment has been determined. During the nine months ended September 30, 2020, the Company recorded an impairment loss of $0.1 million. There were no impairment losses recorded during the three months ended September 30, 2020 and 2019 nor during the three months ended September 30, 2019.

Investments of consolidated fund

As of December 31, 2019, Medley measured the carrying value of investments held by its consolidated fund, which consisted of $0.2 million of equity investments and $1.3 million of senior secured loans. There were no investments of consolidated fund as of September 30, 2020, as a result of the deconsolidation of STRF on April 6, 2020.

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FAIR VALUE MEASUREMENTS

9 Months Ended

Sep. 30, 2020

Fair Value Disclosures [Abstract]

Fair Value Measurements

FAIR VALUE MEASUREMENTS

Fair value is the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where available, fair value is based on observable market prices or parameters, or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models are applied. These valuation models involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments’ complexity. The Company’s fair value analysis includes an analysis of the value of any unfunded loan commitments. Financial investments recorded at fair value in these condensed consolidated financial statements are categorized for disclosure purposes based upon the level of judgment associated with the inputs to the valuation of the investment as of the measurement date. Investments which are valued using NAV as a practical expedient are excluded from this hierarchy:

• Level I – Valuations based on quoted prices in active markets for identical assets or liabilities at the measurement date.

• Level II – Valuations based on inputs other than quoted prices in active markets included in Level I, which are either directly or indirectly observable at the measurement date. This category includes quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in non-active markets including actionable bids from third parties for privately held assets or liabilities, and observable inputs other than quoted prices such as yield curves and forward currency rates that are entered directly into valuation models to determine the value of derivatives or other assets or liabilities.

• Level III – Valuations based on inputs that are unobservable and where there is little, if any, market activity at the measurement date. The inputs for the determination of fair value may require significant management judgment or estimation and are based upon management’s assessment of the assumptions that market participants would use in pricing the assets and liabilities. These investments include debt and equity investments in private companies or assets valued using the Market or Income Approach and may involve pricing models whose inputs require significant judgment or estimation because of the absence of any meaningful current market data for identical or similar investments. The inputs in these valuations may include, but are not limited to, capitalization and discount rates, beta and EBITDA multiples. The information may also include pricing information or broker quotes which include a disclaimer that the broker would not be held to such a price in an actual transaction. The non-binding nature of consensus pricing and/or quotes accompanied by disclaimer would result in classification as Level III information, assuming no additional corroborating evidence.

There were no financial assets or liabilities at fair value as of September 30, 2020 due to the deconsolidation of STRF and settlement of the amounts due to DB Med Investors in April 2020.

The following tables summarize the fair value hierarchy of the Company's financial assets and liabilities measured at fair value as of December 31, 2019:

	As of December 31, 2019
	Level I		Level II		Level III		Total
Assets	(in thousands)
Investments of consolidated fund	$	110	$	—	$	1,331	$	1,441
Total Assets	$	110	$	—	$	1,331	$	1,441
Liabilities
Due to DB Med Investors (Note 11)	$	—	$	—	$	1,750	$	1,750
Total Liabilities	$	—	$	—	$	1,750	$	1,750

Included in investments of consolidated fund as of December 31, 2019 are Level I assets of $0.1 million in equity investments and Level III assets of $1.3 million, which consists of senior secured loans and equity investments. The significant unobservable inputs used in the fair value measurement of Level III assets of the consolidated fund's investments in senior secured loans include market yields. Significant increases or decreases in market yields in isolation would result in a significantly higher or lower fair value measurement. There were no significant unrealized gains or losses related to the investments of consolidated fund for the three and nine months ended September 30, 2020 and 2019.

The following is a summary of changes in fair value of the Company's financial assets that have been categorized within Level III of the fair value hierarchy:

	Level III Financial Assets as of September 30, 2020
	Balance at December 31, 2019		Deconsolidation of STRF		Transfers In or (Out) of Level III	Realized and Unrealized Depreciation		Sale of Level III Assets		Balance at September 30, 2020
	(in thousands)
Investments of consolidated fund	$	1,331	(940	)	—	(295	)	(96	)	$	—

The following is a summary of changes in fair value of the Company's financial liabilities that have been categorized within Level III of the fair value hierarchy:

	Level III Financial Liabilities as of September 30, 2020
	Balance at December 31, 2019		Settlement of liability to DB Med Investors, at fair value		Payments	Realized and Unrealized Depreciation		Balance at September 30, 2020
	(in thousands)
Due to DB Med Investors (Note 11)	$	1,750	(1,541	)	—	(209	)	$	—

A review of the fair value hierarchy classifications is conducted on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification for certain financial assets or liabilities. Reclassifications impacting all levels of the fair value hierarchy are reported as transfers in or out of Level I, II or III category as of the beginning of the quarter during which the reclassifications occur. There were no transfers between levels in the fair value hierarchy during the three and nine months ended September 30, 2020.

When determining the fair value of publicly traded equity securities, the Company uses the quoted closing market price as of the valuation date on the primary market or exchange on which they trade. Our equity method investments for which fair value is measured at NAV per share, or its equivalent, using the practical expedient, are not categorized in the fair value hierarchy.

Prior to the deconsolidation of STRF on April 6, 2020, the Company's investments of consolidated fund were treated as investments at fair value and any realized and unrealized gains and losses from those investments were recorded through the Company's condensed consolidated statements of operations. The Company's treatment was consistent with that of STRF, which is considered an investment company under ASC 946, Financial Services - Investment Companies, for standalone reporting purposes. The fair value of the Company's liability to DB Med Investors at December 31, 2019 was derived from the net asset value of shares of STRF which was held by the Company. On April 6, 2020, such shares were distributed to DB Med Investors in satisfaction of the Company's liability to them. Changes in unrealized losses related to the Company's due to DB Med Investors liability were all included in earnings.

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LEASES

9 Months Ended

Sep. 30, 2020

Leases [Abstract]

Leases

LEASES

At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the circumstances present. Leases with a term greater than one year are recognized on the balance sheet as right-of-use assets and lease liabilities. Lease liabilities and the corresponding right-of-use assets are recorded based on the present values of lease payments over the expected lease terms. The Company’s expected lease terms may include options to extend or terminate the lease when it is reasonably certain that it will exercise that option. When determining if a renewal option is reasonably certain of being exercised, the Company considers several factors, including but not limited to, the significance of leasehold improvements incurred on the property, whether the asset is difficult to replace, or specific characteristics unique to the particular lease that would make it reasonably certain that the Company would exercise such option. The Company has concluded that renewal and early termination options are not reasonably certain of being exercised by the Company and thus not included in the calculation of its right-of-use assets and operating lease liabilities. The interest rate implicit in lease contracts is typically not readily determinable. As such, the Company utilizes the appropriate incremental borrowing rates, which are the rates that would be incurred to borrow on a collateralized basis, over similar terms, amounts equal to the lease payments in a similar economic environment. Variable payments that do not depend on a rate or index are not included in the lease liability and are recognized as incurred. If significant events, changes in circumstances, or other events indicate that the lease term or other inputs have changed, the Company would reassess lease classification, re-measure the lease liability by using revised inputs as of the reassessment date, and adjust the underlying right-of-use asset.

Substantially all of the Company's operating leases are comprised of its office space in New York City and San Francisco which expire at various times through September 2023. The Company does not have any contracts that would be classified as a finance lease or any operating leases that contain variable payments.

The components of lease cost and other information during the three and nine months ended September 30, 2020 and 2019 are as follows:

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2020			2019			2020			2019
Lease cost	(in thousands)
Operating lease costs	$	634		$	637		$	1,914		$	1,895
Variable lease costs	—			—			—			—
Sublease income	(110		)	(113		)	(329		)	(342		)
Total lease cost	$	524		$	524		$	1,585		$	1,553

Supplemental balance sheet information related to leases as of September 30, 2020 and December 31, 2019 is as follows:

	As of
	September 30, 2020		December 31, 2019
Weighted-average remaining lease term (in years)	2.8		3.5
Weighted-average discount rate	8.2	%	8.2	%

On June 29, 2020, the Company entered into a letter agreement with its landlord for its New York headquarters, pursuant to which the Company was granted its request for a concession from the landlord to defer rent payments for the months of May, June, July and August 2020 until 2021. The deferred rent payments, which aggregated to $0.8 million, will be paid back in nine equal monthly installments commencing on January 1, 2021.

In April 2020, the FASB staff issued a question and answer document (“FASB Q&A”) focused on the application of lease accounting guidance to lease concessions provided as a result of the COVID-19 pandemic. Under existing lease guidance, the Company would have to determine, on a lease-by-lease basis, if a lease concession was the result of a new arrangement reached with the tenant or if a lease concession was under the enforceable rights and obligations within the existing lease agreement. The FASB Q&A allows the Company, if certain criteria have been met, to bypass the lease-by-lease analysis, and instead elect to either apply the lease modification accounting framework or not, with such election applied consistently to leases with similar characteristics and similar circumstances. The Company elected to apply such relief and availed itself of the election to avoid performing a lease-by-lease analysis for the lease concessions received as the concessions granted as relief were due to the COVID-19 pandemic and result in the cash flows to the landlord remaining substantially the same or less.

Future payments for operating leases as of September 30, 2020 are as follows (in thousands):

Remaining in 2020 (October 1st through December 31st)	$	728
2021	3,288
2022	2,441
2023	1,823
Total future lease payments	8,280
Less imputed interest	(860		)
Operating lease liabilities, at September 30, 2020	$	7,420

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OTHER ASSETS

9 Months Ended

Sep. 30, 2020

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]

Other Assets

OTHER ASSETS

Other assets consist of the following:

	As of
	September 30, 2020		December 31, 2019
	(in thousands)
Fixed assets, net of accumulated depreciation and amortization of $4,386 and $3,847, respectively	$	2,041	$	2,564
Security deposits	1,975		1,975
Administrative fees receivable (Note 13)	1,252		1,073
Due from affiliates (Note 13)	1,829		2,693
Prepaid expenses and income taxes	2,674		746
Other assets	302		676
Total other assets	$	10,073	$	9,727

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SENIOR UNSECURED DEBT

9 Months Ended

Sep. 30, 2020

Debt Disclosure [Abstract]

Senior Unsecured Debt

SENIOR UNSECURED DEBT

The carrying value of the Company’s senior unsecured debt consists of the following:

	As of
	September 30, 2020		December 31, 2019
	(in thousands)
2026 Notes, net of unamortized discount and debt issuance costs of $2,308 and $2,584, respectively	$	51,287	$	51,011
2024 Notes, net of unamortized premium and debt issuance costs of $1,329 and $1,629 respectively	67,671		67,371
Total senior unsecured debt	$	118,958	$	118,382

2026 Notes 

On August 9, 2016 and October 18, 2016, the Company issued debt consisting of $53.6 million in aggregate principal amount of senior unsecured notes due 2026 at a stated coupon rate of 6.875% (the "2026 Notes"). The net proceeds from these offerings were used to pay down a portion of the Company's outstanding indebtedness under its term loan facility with Credit Suisse, which was terminated in February 2017. Interest is payable quarterly. The 2026 Notes are subject to redemption in whole or in part at any time or from time to time, at the option of the Company, on or after August 15, 2019 at a redemption price per security equal to 100% of the outstanding principal amount thereof plus accrued and unpaid interest payments. The 2026 notes were recorded net of discount and direct issuance costs of $3.8 million which are being amortized over the term of the notes using the effective interest rate method. The 2026 Notes are listed on the New York Stock Exchange and trade thereon under the trading symbol “MDLX.” The fair value of the 2026 Notes based on their underlying quoted market price was $14.6 million as of September 30, 2020.

Interest expense on the 2026 Notes, including accretion of note discount and amortization of debt issuance costs, was $1.0 million for each of the three months ended September 30, 2020 and 2019. For each of the nine months ended September 30, 2020 and 2019, such interest expense was $3.0 million.

2024 Notes

On January 18, 2017 and February 22, 2017, the Company issued $69.0 million in aggregate principal amount of senior unsecured notes due 2024 at a stated coupon rate of 7.25% (the "2024 Notes"). The net proceeds from these offerings were used to pay down the remaining portion of the Company's outstanding indebtedness under its Term Loan Facility with the remaining to be used for general corporate purposes. Interest is payable quarterly and interest payments commenced on April 30, 2017. The 2024 Notes are subject to redemption in whole or in part at any time or from time to time, at the option of the Company, on or after January 30, 2020 at a redemption price per security equal to 100% of the outstanding principal amount thereof plus accrued and unpaid interest payments. The 2024 notes were recorded net of premium and direct issuance costs of $2.8 million which are being amortized over the term of the notes using the effective interest rate method. The 2024 Notes are listed on the New York Stock Exchange and trade thereon under the trading symbol “MDLQ.” The fair value of the 2024 Notes based on their underlying quoted market price was $20.5 million as of September 30, 2020.

Interest expense on the 2024 Notes, including amortization of debt premium and debt issuance costs, was $1.4 million for each of the three months ended September 30, 2020 and 2019. For each of the nine months ended September 30, 2020 and 2019, such interest expense was $4.1 million.

LOANS PAYABLE

Loans payable consist of the following:

	As of
	September 30, 2020		December 31, 2019
	(in thousands)
Non-recourse promissory notes	$	10,000	$	10,000
Total loans payable	$	10,000	$	10,000

In April 2012, the Company borrowed $10.0 million under two non-recourse promissory notes. Proceeds from the borrowings were used to purchase 1,108,033 shares of common stock of SIC, which were pledged as collateral for the obligations. Interest on the notes is paid monthly and is equal to the dividends received by the Company related to the pledged shares. The Company may prepay the notes in whole or in part at any time without penalty and the lenders may call the notes if certain conditions are met. The proceeds from the notes were recorded net of issuance costs of $3.8 million and were being accreted, using the effective interest method, over the original term of the non-recourse promissory notes. During the three months ended September 30, 2020, there was no interest expense under these notes. During the three months ended September 30, 2019, total interest expense under these notes, including accretion of the notes discount, was $0.2 million. During the nine months ended September 30, 2020 and 2019, interest expense under these notes, including accretion of the notes discount, was $0.2 million and $0.7 million, respectively. The notes had an original maturity date of March 31, 2019. Through various amendments dated February 28, 2019, June 28, 2019, December 8, 2019, March 27, 2020 and June 30, 2020, the maturity date had been extended, with the latest amendment, extending the maturity date to December 31, 2020. As consideration paid for the June 28, 2019 amendment, the interest rate on these notes was increased by 1.0% per annum. As consideration received for the June 30, 2020 amendment, the 1.0% increase in the interest per annum is no longer in effect for periods subsequent to June 30, 2020. The fair value of the outstanding balance of the notes was $10.0 million as of September 30, 2020 and December 31, 2019.

Contractual Maturities of Loans Payable

The $10.0 million of future principal payments will be due on December 31, 2020. The notes can also be settled in full by delivery of 1,108,033 shares of common stock of Sierra, which were pledged as collateral for the obligations.

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LOANS PAYABLE

9 Months Ended

Sep. 30, 2020

Debt Disclosure [Abstract]

Loans Payable

SENIOR UNSECURED DEBT

The carrying value of the Company’s senior unsecured debt consists of the following:

	As of
	September 30, 2020		December 31, 2019
	(in thousands)
2026 Notes, net of unamortized discount and debt issuance costs of $2,308 and $2,584, respectively	$	51,287	$	51,011
2024 Notes, net of unamortized premium and debt issuance costs of $1,329 and $1,629 respectively	67,671		67,371
Total senior unsecured debt	$	118,958	$	118,382

2026 Notes 

On August 9, 2016 and October 18, 2016, the Company issued debt consisting of $53.6 million in aggregate principal amount of senior unsecured notes due 2026 at a stated coupon rate of 6.875% (the "2026 Notes"). The net proceeds from these offerings were used to pay down a portion of the Company's outstanding indebtedness under its term loan facility with Credit Suisse, which was terminated in February 2017. Interest is payable quarterly. The 2026 Notes are subject to redemption in whole or in part at any time or from time to time, at the option of the Company, on or after August 15, 2019 at a redemption price per security equal to 100% of the outstanding principal amount thereof plus accrued and unpaid interest payments. The 2026 notes were recorded net of discount and direct issuance costs of $3.8 million which are being amortized over the term of the notes using the effective interest rate method. The 2026 Notes are listed on the New York Stock Exchange and trade thereon under the trading symbol “MDLX.” The fair value of the 2026 Notes based on their underlying quoted market price was $14.6 million as of September 30, 2020.

Interest expense on the 2026 Notes, including accretion of note discount and amortization of debt issuance costs, was $1.0 million for each of the three months ended September 30, 2020 and 2019. For each of the nine months ended September 30, 2020 and 2019, such interest expense was $3.0 million.

2024 Notes

On January 18, 2017 and February 22, 2017, the Company issued $69.0 million in aggregate principal amount of senior unsecured notes due 2024 at a stated coupon rate of 7.25% (the "2024 Notes"). The net proceeds from these offerings were used to pay down the remaining portion of the Company's outstanding indebtedness under its Term Loan Facility with the remaining to be used for general corporate purposes. Interest is payable quarterly and interest payments commenced on April 30, 2017. The 2024 Notes are subject to redemption in whole or in part at any time or from time to time, at the option of the Company, on or after January 30, 2020 at a redemption price per security equal to 100% of the outstanding principal amount thereof plus accrued and unpaid interest payments. The 2024 notes were recorded net of premium and direct issuance costs of $2.8 million which are being amortized over the term of the notes using the effective interest rate method. The 2024 Notes are listed on the New York Stock Exchange and trade thereon under the trading symbol “MDLQ.” The fair value of the 2024 Notes based on their underlying quoted market price was $20.5 million as of September 30, 2020.

Interest expense on the 2024 Notes, including amortization of debt premium and debt issuance costs, was $1.4 million for each of the three months ended September 30, 2020 and 2019. For each of the nine months ended September 30, 2020 and 2019, such interest expense was $4.1 million.

LOANS PAYABLE

Loans payable consist of the following:

	As of
	September 30, 2020		December 31, 2019
	(in thousands)
Non-recourse promissory notes	$	10,000	$	10,000
Total loans payable	$	10,000	$	10,000

In April 2012, the Company borrowed $10.0 million under two non-recourse promissory notes. Proceeds from the borrowings were used to purchase 1,108,033 shares of common stock of SIC, which were pledged as collateral for the obligations. Interest on the notes is paid monthly and is equal to the dividends received by the Company related to the pledged shares. The Company may prepay the notes in whole or in part at any time without penalty and the lenders may call the notes if certain conditions are met. The proceeds from the notes were recorded net of issuance costs of $3.8 million and were being accreted, using the effective interest method, over the original term of the non-recourse promissory notes. During the three months ended September 30, 2020, there was no interest expense under these notes. During the three months ended September 30, 2019, total interest expense under these notes, including accretion of the notes discount, was $0.2 million. During the nine months ended September 30, 2020 and 2019, interest expense under these notes, including accretion of the notes discount, was $0.2 million and $0.7 million, respectively. The notes had an original maturity date of March 31, 2019. Through various amendments dated February 28, 2019, June 28, 2019, December 8, 2019, March 27, 2020 and June 30, 2020, the maturity date had been extended, with the latest amendment, extending the maturity date to December 31, 2020. As consideration paid for the June 28, 2019 amendment, the interest rate on these notes was increased by 1.0% per annum. As consideration received for the June 30, 2020 amendment, the 1.0% increase in the interest per annum is no longer in effect for periods subsequent to June 30, 2020. The fair value of the outstanding balance of the notes was $10.0 million as of September 30, 2020 and December 31, 2019.

Contractual Maturities of Loans Payable

The $10.0 million of future principal payments will be due on December 31, 2020. The notes can also be settled in full by delivery of 1,108,033 shares of common stock of Sierra, which were pledged as collateral for the obligations.

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DUE TO FORMER MINORITY INTEREST HOLDER

9 Months Ended

Sep. 30, 2020

Debt Disclosure [Abstract]

Due to Former Minority Interest Holder

DUE TO FORMER MINORITY INTEREST HOLDER

This balance consists of the following:

	As of
	September 30, 2020		December 31, 2019
	(in thousands)
Due to former minority interest holder, net of unamortized discount of $817 and $1,480, respectively	$	7,233	$	8,145
Total due to former minority interest holder	$	7,233	$	8,145

In January 2016, the Company executed an amendment to SIC Advisors' operating agreement which provided the Company with the right to redeem membership units owned by the minority interest holder, Strategic Capital Advisory Services, LLC ("SCAS"). The Company’s redemption right was triggered by the termination of the dealer manager agreement between Sierra and SC Distributors LLC ("DMA Termination"), an affiliate of the minority interest holder. As a result of this redemption feature, the Company reclassified the non-controlling interest in SIC Advisors from the equity section of its consolidated balance sheet to redeemable non-controlling interests in the mezzanine section of its consolidated balance sheet based on its fair value as of the amendment date. On July 31, 2018, a DMA Termination event occurred and, as a result, the Company reclassified the redeemable non-controlling interest in SIC Advisors from redeemable non-controlling interests in the mezzanine section of its consolidated balance sheet to due to former minority interest holder, a component of total liabilities on the Company's consolidated balance sheet, based on its fair value as of that date.

In December 2018, Medley LLC entered into a Letter Agreement with SCAS, whereby consideration of $14.0 million was agreed upon for the satisfaction in full of all amounts owed by Medley under the LLC Agreement. The amount due was payable in sixteen equal installments through August 5, 2022. The unamortized discount is being amortized over the term of the payable using the effective interest method.

As a result of the ongoing economic impact of COVID-19, the Company did not pay its installment payment that was due in May 2020 and commenced discussions with SCAS to seek deferral of a portion of the upcoming installment payments until 2021 through 2023. On August 4, 2020, the Company and SCAS entered into an amendment to the Letter Agreement which, among other items, revises the payment terms under the original letter agreement. The payment terms were amended such that the remaining balance due to SCAS would be payable as follows: $700,000 on August 5, 2020, followed by three quarterly installments of $350,000 and quarterly installments thereafter of $1.0 million through February 5, 2023. The Company accounted for this concession as a troubled debt restructuring and as the future undiscounted cash flows from the revised agreement was greater than the carrying value of the amount due at the date of the concession. As a result a new effective rate was established based on the carrying value of the original liability and the revised cash flows.

As of September 30, 2020, future payments due to the former minority interest holder, including principal and implied interest, were as follows (in thousands):

Remaining in 2020 (October 1st through December 31st)	$	350
2021	2,700
2022	4,000
2023	1,000
Total future payments	$	8,050

During the three and nine months ended September 30, 2020, the amortization of the discount was $0.2 million and $0.7 million, respectively, and is included as a component of interest expense on the Company's condensed consolidated statements of operations. During the three and nine months ended September 30, 2019 the amortization of the discount was $0.3 million and $0.8 million, respectively, and is included as a component of interest expense on the Company's condensed consolidated statements of operations.

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ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER LIABILITIES

9 Months Ended

Sep. 30, 2020

Payables and Accruals [Abstract]

Accounts Payable, Accrued Expenses and Other Liabilities

ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER LIABILITIES

Accounts payable, accrued expenses and other liabilities consist of the following:

	As of
	September 30, 2020		December 31, 2019
	(in thousands)
Accrued compensation and benefits	$	3,496	$	6,161
Due to affiliate (Note 13)	7,224		7,212
Revenue share payable (Note 12)	7,292		2,316
Accrued interest	1,294		1,294
Professional fees	4,169		1,481
Due to DB Med Investors, at fair value	—		1,750
Accounts payable and other accrued expenses	2,467		1,672
Total accounts payable, accrued expenses and other liabilities	$	25,942	$	21,886

On June 3, 2016, the Company entered into a Master Investment Agreement with DB MED Investor I LLC and DB MED Investor II LLC ("DB Med Investors’’) to invest in new and existing Medley managed funds (the "Joint Venture"). Under the Master Investment Agreement, as amended (the "MIA"), DB Med Investors have the right upon the occurrence of certain events (the "Put Option Trigger Event") to redeem their interests in the Joint Venture. In October 2019, a Put Option Trigger Event had occurred. On October 22, 2019, Medley LLC, Medley Seed Funding I LLC (“Seed Funding I”) and Medley Seed Funding II LLC (“Seed Funding II”) received notice from DB Med Investors that they exercised their put option right under the MIA. In connection with the exercise of DB Med Investors put option right, the Company reclassified the Joint Venture's minority interest balance from redeemable non-controlling interests in the mezzanine section of its consolidated balance sheet (Note 16) to due to DB Med Investors, a component of accounts payable, accrued expenses and other liabilities, at its then fair value of $18.1 million. In addition, the Company elected to subsequently remeasure the liability under ASC 825, Financial Instruments, with changes recorded through earnings. The fair value of this liability at December 31, 2019 was determined to be $1.8 million which represented the fair value of the remaining assets held in the Medley Seed Funding entities at December 31, 2019, which, as further described below, was distributed to DB Med Investors on April 6, 2020 at its then fair value of $1.5 million.

In accordance with its obligations under the MIA, on October 25, 2019 and October 28, 2019, Seed Funding I distributed to DB Med Investors all of its assets, including all of its shares of MCC, which had an aggregate fair value on the date of transfer of $16.5 million, and cash of less than $0.1 million. Seed Funding II distributed to DB Med Investors all of its assets, including cash of $0.2 million and approximately 82,121 shares held by Seed Investor II in STRF on April 6, 2020.

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COMMITMENTS AND CONTINGENCIES

9 Months Ended

Sep. 30, 2020

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

COMMITMENTS AND CONTINGENCIES

Operating Leases

Refer to Note 6 to these condensed consolidated financial statements.

Capital Commitments to Funds

As of September 30, 2020 and December 31, 2019, the Company had aggregate unfunded commitments of $0.3 million to certain long-dated private funds.

Other Commitments

In April 2012, the Company entered into an obligation to pay to a third party a fixed percentage of management and incentive fees received by the Company from Sierra. The agreement was entered into contemporaneously with the $10.0 million non-recourse promissory notes that were issued to the same parties (Note 9). The two transactions were deemed to be related freestanding contracts and the $10.0 million of loan proceeds were allocated to the contracts using their relative fair values. At inception, the Company recognized an obligation of $4.4 million representing the present value of the future cash flows expected to be paid under this agreement. Each quarter the Company performs an analysis to recalculate the fair value of the revenue share obligation. The analysis includes assumptions related to expected future cash flows, present value discount rate and the renewal of the investment advisory agreement with Sierra, which is subject to an annual renewal and may also be terminated by Sierra upon 60 days' notice to the Company. As of September 30, 2020 and December 31, 2019, this obligation amounted to $7.3 million and $2.3 million, respectively, and is recorded as revenue share payable, a component of accounts payable, accrued expenses and other liabilities on the Company's consolidated balance sheets. The change in the estimated cash flows for this obligation is recorded in other expenses, net on the Company's consolidated statements of operations.

On January 31, 2019, the Company entered into a termination agreement with the lenders which would have become effective upon the closing of the Company's then-pending (and now terminated) merger with Sierra. In accordance with the provisions of the termination agreement, the Company would have paid the lenders $6.5 million on or prior to the merger closing date, reimbursed the lenders for their out of pocket legal fees and entered into a six month $6.5 million promissory note. The promissory note would have borne interest at seven percentage points over the LIBOR Rate, as defined in the termination agreement. Such consideration would have been for the full satisfaction of the two non-recourse promissory notes described in Note 9 as well as the Company's revenue share obligation described above. On May 1, 2020, the Company had received a notice of termination from Sierra, of its previously announced merger. Because the termination agreement and economic terms described above were conditioned upon closing of the merger, the agreement has been effectively rendered void.

Legal Proceedings

From time to time, the Company is involved in various legal proceedings, lawsuits and claims incidental to the conduct of its business. Its business is also subject to extensive regulation, which may result in regulatory proceedings against it. Except as described below, the Company is not currently party to any material legal proceedings.

One of the Company's subsidiaries, MCC Advisors LLC, was named as a defendant in a lawsuit on May 29, 2015, by Moshe Barkat and Modern VideoFilm Holdings, LLC (“MVF Holdings”) against MCC, MOF II, MCC Advisors LLC, Deloitte Transactions and Business Analytics LLP A/K/A Deloitte ERG (“Deloitte”), Scott Avila (“Avila”), Charles Sweet, and Modern VideoFilm, Inc. (“MVF”). The lawsuit is pending in the California Superior Court, Los Angeles County, Central District, as Case No. BC 583437. The lawsuit was filed after MCC, as agent for the lender group, exercised remedies following a series of defaults by MVF and MVF Holdings on a secured loan with an outstanding balance at the time in excess of $65 million. The lawsuit sought damages in excess of $100 million. Deloitte and Avila have settled the claims against them in exchange for payment of $1.5 million. On June 6, 2016, the court granted the Medley defendants’ demurrers on several counts and dismissed Mr. Barkat’s claims with prejudice except with respect to his claim for intentional interference with contract. On March 18, 2018, the court granted the Medley defendants’ motion for summary adjudication with respect to Mr. Barkat’s sole remaining claim against the Medley Defendants for intentional interference. Now that the trial court has ruled in favor of the Medley defendants on all counts, the only remaining claims in the Barkat litigation are MCC and MOF II’s affirmative counterclaims against Mr. Barkat and MVF Holdings, which MCC and MOF II are diligently prosecuting.

On August 29, 2016, MVF Holdings filed another lawsuit in the California Superior Court, Los Angeles County, Central District, as Case No. BC 631888 (the “Derivative Action”), naming MCC Advisors LLC and certain of Medley’s employees as defendants, among others. The plaintiff in the Derivative Action, asserts claims against the defendants for breach of fiduciary duty, aiding and abetting breach of fiduciary duty, unfair competition, breach of the implied covenant of good faith and fair dealing, interference with prospective economic advantage, fraud, and declaratory relief. MCC Advisors LLC and the other defendants believe the causes of action asserted in the Derivative Action are without merit and all defendants intend to continue to assert a vigorous defense. On October 16, 2020, the parties agreed to a settlement of all claims arising in connection with the Hugh Miller matter, the MVF Derivative Action and the MVF chapter 11 proceedings. The settlement was read into the record on October 16, 2020 at a hearing in the MVF Derivative Action. The settlement is binding, subject to bankruptcy court approval in the MVF bankruptcy proceedings. A hearing to approve the settlement is scheduled for November 30, 2020. Pursuant to the settlement, subject to bankruptcy court approval, the Lenders will pay the plaintiffs a total of $5 million. All of the $5 million is being funded by the insurance carriers for the Lenders pro rata based on their participation in the original loan to MVF.

Medley LLC, Medley Capital Corporation, Medley Opportunity Fund II LP, Medley Management, Inc., Medley Group, LLC, Brook Taube, and Seth Taube (the “Medley Defendants”) were named as defendants, along with other various parties, in a putative class action lawsuit captioned as Royce Solomon, Jodi Belleci, Michael Littlejohn, and Giulianna Lomaglio v. American Web Loan, Inc., AWL, Inc., Mark Curry, MacFarlane Group, Inc., Sol Partners, Medley Opportunity Fund, II, LP, Medley LLC, Medley Capital Corporation, Medley Management, Inc., Medley Group, LLC, Brook Taube, Seth Taube, DHI Computing Service, Inc., Middlemarch Partners, and John Does 1-100, filed on December 15, 2017, amended on March 9, 2018, and amended a second time on February 15, 2019, in the United States District Court for the Eastern District of Virginia, Newport News Division, as Case No. 4:17-cv-145 (hereinafter, “Class Action 1”). Medley Opportunity Fund II LP and Medley Capital Corporation were also named as defendants, along with various other parties, in a putative class action lawsuit captioned George Hengle and Lula Williams v. Mark Curry, American Web Loan, Inc., AWL, Inc., Red Stone, Inc., Medley Opportunity Fund II LP, and Medley Capital Corporation, filed February 13, 2018, in the United States District Court, Eastern District of Virginia, Richmond Division, as Case No. 3:18-cv-100 (“Class Action 2”). Medley Opportunity Fund II LP and Medley Capital Corporation were also named as defendants, along with various other parties, in a putative class action lawsuit captioned John Glatt, Sonji Grandy, Heather Ball, Dashawn Hunter, and Michael Corona v. Mark Curry, American Web Loan, Inc., AWL, Inc., Red Stone, Inc., Medley Opportunity Fund II LP, and Medley Capital Corporation, filed August 9, 2018 in the United States District Court, Eastern District of Virginia, Newport News Division, as Case No. 4:18-cv-101 (“Class Action 3”) (together with Class Action 1 and Class Action 2, the “Virginia Class Actions”). Medley Opportunity Fund II LP was also named as a defendant, along with various other parties, in a putative class action lawsuit captioned Christina Williams and Michael Stermel v. Red Stone, Inc. (as successor in interest to MacFarlane Group, Inc.), Medley Opportunity Fund II LP, Mark Curry, Brian McGowan, Vincent Ney, and John Doe entities and individuals, filed June 29, 2018 and amended July 26, 2018, in the United States District Court for the Eastern District of Pennsylvania, as Case No. 2:18-cv-2747 (the “Pennsylvania Class Action”).

On October 26, 2020, Medley Opportunity Fund II LP and Medley Capital Corporation were served with a new complaint in a putative class action lawsuit captioned Charles P. McDaniel v. Mark Curry, American Web Loan, Inc., Red Stone, Inc., Medley Opportunity Fund II LP, and Medley Capital Corporation, filed October 22, 2020, in the Circuit Court of Ohio County, West Virginia, as Case No. 20-C-169 (the “West Virginia Class Action”)(together with the Virginia Class Actions and the Pennsylvania Class Action, the “Class Action Complaints”).

The plaintiffs in the Virgina and Pennsylvania Class Action Complaints filed their putative class actions alleging claims under the Racketeer Influenced and Corrupt Organizations Act, and various other claims arising out of the alleged payday lending activities of American Web Loan. The claims against Medley Opportunity Fund II LP, Medley LLC, Medley Capital Corporation, Medley Management, Inc., Medley Group, LLC, Brook Taube, and Seth Taube (in Class Action 1, as amended); Medley Opportunity Fund II LP and Medley Capital Corporation (in Class Action 2 and Class Action 3); and Medley Opportunity Fund II LP (in the Pennsylvania Class Action), allege that those defendants in each respective action exercised control over, or improperly derived income from, and/or obtained an improper interest in, American Web Loan’s payday lending activities as a result of a loan to American Web Loan. The plaintiff in the West Virginia Class Action Complaint filed his putative class action alleging claims arising West Virginia state law’s regulating interest rates and other fees in connection with consumer lending activities.

The loan was made by Medley Opportunity Fund II LP in 2011. American Web Loan repaid the loan from Medley Opportunity Fund II LP in full in February of 2015, more than 1 year and 10 months prior to any of the loans allegedly made by American Web Loan to the alleged class plaintiff representatives in Class Action 1. In Class Action 2, the alleged class plaintiff representatives had not alleged when they received any loans from American Web Loan. In Class Action 3, the alleged class plaintiff representatives claim to have received loans from American Web Loan at various times from February 2015 through April 2018. In the Pennsylvania Class Action, the alleged class plaintiff representatives claim to have received loans from American Web Loan in 2017.

By orders dated August 7, 2018 and September 17, 2018, the Court presiding over the Virginia Class Actions consolidated those cases for all purposes. On October 12, 2018, Plaintiffs in Class Action 3 filed a notice of voluntary dismissal of all claims, and on October 29, 2018, Plaintiffs in Class Action 2 filed a notice of voluntary dismissal of all claims.

On April 16, 2020, the parties to Class Action 1 reached a settlement reflected in a Settlement Agreement (the “Settlement Agreement”) that has been publicly filed in Class Action 1 (ECF No. 414-1). The Settlement Agreement was subject to court approval. At a hearing on November 4, 2020, the court denied the plaintiffs’ motion to approve the settlement and ordered the parties to mediation in front of Judge Novak of the Eastern District of Virginia in December of 2020.

On October 29, 2020, the parties to the Pennsylvania Class Action reached a settlement pursuant to which AWL agreed to make a payment to the plaintiffs and to forgive loans that they owed AWL. The Medley Defendants obtained a full release and bore none of the settlement amount. The Pennsylvania Class Action was dismissed with prejudice on November 2, 2020.

The Medley Defendants and the other defendants believe the alleged claims asserted in the Virginia Class Action and the West Virginia putative class action are without merit and they are defending these lawsuits vigorously.

On May 11, 2020, the court approved a settlement and dismissed two purported class actions that had been commenced in the Supreme Court of the State of New York, County of New York, by alleged stockholders of Medley Capital Corporation, captioned, respectively, Helene Lax v. Brook Taube, et al., Index No. 650503/2019, and Richard Dicristino, et al. v. Brook Taube, et al., Index No. 650510/2019 (together with the Lax Action, the “New York Actions”). Named as defendants in each complaint were Brook Taube, Seth Taube, Jeffrey Tonkel, Arthur S. Ainsberg, Karin Hirtler-Garvey, John E. Mack, Mark Lerdal, Richard T. Allorto, Jr., Medley Capital Corporation (“MCC”), MDLY, Sierra Income Corporation (“Sierra”), and Sierra Management, Inc. The complaints in each of the New York Actions alleged that the individuals named as defendants breached their fiduciary duties in connection with the proposed merger of MCC with and into Sierra, and that the other defendants aided and abetted those alleged breaches of fiduciary duties. Compensatory damages in unspecified amounts were sought. The defendants vigorously denied any wrongdoing or liability with respect to the facts and claims that were asserted, or which could have been asserted, in the New York Actions. None of the defendants paid any consideration to the plaintiffs in connection with the dismissal. The plaintiffs agreed to dismiss the New York Actions in exchange for MCC’s agreement to pay $50,000 in attorneys’ fees and expenses to plaintiffs’ counsel.     

While management currently believes that the ultimate outcome of these proceedings will not have a material adverse effect on the Company’s consolidated financial position or overall trends in consolidated results of operations, litigation is subject to inherent uncertainties. The Company reviews relevant information with respect to litigation and regulatory matters on a quarterly and annual basis. The Company establishes liabilities for litigation and regulatory actions when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. For matters where a loss is believed to be reasonably possible, but not probable, no liability is established.

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RELATED PARTY TRANSACTIONS

9 Months Ended

Sep. 30, 2020

Related Party Transactions [Abstract]

Related Party Transactions

RELATED PARTY TRANSACTIONS

Substantially all of Medley’s revenue is earned through agreements with its non-consolidated funds for which it collects management and performance fees for providing asset management, advisory and other related services.

Administration Agreements

In January 2011 and April 2012, Medley entered into administration agreements with MCC (the “MCC Admin Agreement”) and Sierra (the “SIC Admin Agreement”), respectively, whereby, as part of its performance obligation to provide asset management, advisory and other related services, Medley agreed to provide administrative services necessary for the operations of MCC and Sierra. MCC and Sierra agreed to pay Medley for the costs and expenses incurred in providing such administrative services, including an allocable portion of Medley’s overhead expenses and an allocable portion of the cost of MCC and Sierra's officers and their respective staff.

Additionally, Medley has entered into administration agreements with other entities that it manages (the “Funds Admin Agreements”), whereby Medley agreed to provide administrative services necessary for the operations of these entities. These entities agreed to reimburse Medley for the costs and expenses incurred in providing such administrative services, including an allocable portion of Medley’s overhead expenses and an allocable portion of the cost of these other vehicles' officers and their respective staffs.

Medley records these administrative fees as revenue in the period when the performance obligation of providing such administrative services is satisfied and such revenue is included as a component of other revenues and fees on the consolidated statements of operations. Amounts due from these agreements are included as a component of other assets on the Company's consolidated balance sheets.

Total revenues recorded under these agreements during the three and nine months ended September 30, 2020 and 2019 are reflected in the table below:

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2020		2019		2020		2019
	(in thousands)
MCC Admin Agreement	$	465	$	822	$	1,747	$	2,437
SIC Admin Agreement	432		980		1,803		2,158
Fund Admin Agreements	295		273		876		732
Total administrative fees from related parties	$	1,192	$	2,075	$	4,426	$	5,327

Amounts due from related parties under these agreements are reflected in the table below.

	As of
	September 30, 2020		December 31, 2019
	(in thousands)
Amounts due from MCC under the MCC Admin Agreement	$	518	$	444
Amounts due from SIC under the SIC Admin Agreement	439		382
Amounts due from entities under the Fund Admin Agreements	295		247
Total administrative fees receivable	$	1,252	$	1,073

Other Amounts Due From Affiliates

The Company also typically facilitates the payment of certain operating costs incurred by the funds that it manages. These costs are normally reimbursed by such funds and are included in due from affiliates, a component of other assets on the Company's condensed consolidated balance sheets. Amounts due from affiliates are reflected in the table below.

Additionally, in connection with the amended and restated limited liability agreement of Medley LLC, Medley LLC agreed to, at the sole discretion of the managing member, reimburse Medley Management Inc. for all expenses incurred, other than expenses incurred in connection with its income tax obligations. From time to time, the company may also advance funds to Medley to cover its operating needs. For the three and nine months ended September 30, 2020, the Company recorded reimbursable expenses of $1.8 million and $5.5 million, respectively, which were recorded as a component of general, administrative and other expenses on the consolidated statements of operations. As of September 30, 2020 and December 31, 2019, amounts due from Medley Management Inc. are included in the table below.

	As of
	September 30, 2020		December 31, 2019
	(in thousands)
Amounts due from MCC	$	53	$	209
Amounts due from SIC	116		578
Amounts due from long-dated private funds	95		801
Amounts due from separately managed accounts	134		199
Amounts due from Medley Management Inc.	1,431		906
Due from Affiliates	$	1,829	$	2,693

Amounts Due to Affiliates

Amounts due to affiliates reflects a clawback obligation of carried interest tax distributions that were received by the Company that would need to be paid back to the respective funds, if the funds were liquidated at fair value as of the end of the reporting period. The Company’s actual obligation, however, would not become payable or realized until the end of a fund’s life. Amounts due to affiliates at September 30, 2020 and December 31, 2019 were $7.2 million.

Organization Agreement

Pursuant to the organization agreement between Medley Management Inc. and Medley LLC, Medley Management Inc. may from time to time make grants of restricted stock units or other awards providing the holder with the contractual right to receive cash payments pursuant to an equity plan to employees, advisors or other persons, as defined, in respect of Medley LLC and its subsidiaries. These awards may entitle the holder thereof to receive dividends paid with respect to the shares of Class A common stock underlying such awards as if such holder were a holder of record of the underlying shares of Class A common stock. Medley LLC has agreed that it assumes any obligation to pay such dividend equivalent amounts to the holders of the respective awards. Additionally, pursuant to this agreement, the number of LLC Units held by Medley Management Inc., shall, at all times, equal the number of shares of Class A common stock outstanding and Medley LLC has agreed to issue additional LLC units equal to the number of shares of Medley Management Inc. issued pursuant to its equity plan.

Expense Support Agreement

On June 12, 2020, the Company and MCC entered into an Expense Support Agreement (the “ESA”) under which the Company agreed to cap the MCC management fee and all of MCC's other operating expenses (except interest expense, certain extraordinary strategic transaction expenses, and other expenses approved by the MCC Special Committee) at $667,000 per month (the “Cap”). Under the ESA, the Cap is effective from June 1, 2020 through December 31, 2020. During the three and nine months ended September 30, 2020, the Company recorded $0.4 million and $0.7 million, respectively, for ESA expenses under this agreement. The ESA expenses are presented as a reduction of management fees in the Company's condensed consolidated statement of operations and as a reduction to management fees receivable on the Company's condensed consolidated balance sheets.

Investment Management Agreement and Administration Agreement

In connection with the Expense Support Agreement, MCC extended the term of the amended and restated investment management agreement between the Company and MCC (the “Investment Management Agreement”) and the Administration Agreement through the quarter ended December 31, 2020. In connection with the foregoing, on June 12, 2020, the Board of MCC approved an amendment to the Investment Management Agreement and an amendment to the Administration Agreement to provide, in each case, that such agreement may be terminated by the Company or MCC with 30 days’ notice, rather than 60 days’ notice.

Investments

Refer to Note 4, Investments, for information related to the Company's investments in related parties.

Exchange Agreement

Prior to the completion of the Company's IPO, Medley LLC's limited liability agreement was restated among other things, to modify its capital structure by reclassifying the interests held by its then existing owners (i.e. the members of Medley prior to the IPO) into the LLC Units. Medley’s existing owners also entered into an exchange agreement under which they (or certain permitted transferees thereof) have the right (subject to the terms of the exchange agreement as described therein), to exchange their LLC Units for shares of Medley Management Inc.’s Class A common stock on a one-for-one basis at fair value, subject to customary conversion rate adjustments for stock splits (including the Company's one-for-ten reverse stock split of Common Stock effected on October 30, 2020), stock dividends and reclassifications.

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INCOME TAXES

9 Months Ended

Sep. 30, 2020

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

Deferred income taxes reflect the net effect of temporary differences between the tax basis of an asset or liability and its reported amount on the Company’s condensed consolidated balance sheets. These temporary differences result in taxable or deductible amounts in future years. Due to the uncertain nature of the ultimate realization of its net deferred tax assets, the Company has established a full valuation allowance, as of September 30, 2020 and December 31, 2019, against the benefits of its deferred tax assets and will recognize these benefits only as reassessment demonstrates they are realizable. Ultimate realization is dependent upon several factors, among which is future earnings and reversing temporary differences. While the need for this valuation allowance is subject to periodic review, if the allowance is reduced, the tax benefits of the net deferred tax assets will be recorded in future operations as a reduction of the Company’s income tax expense. Excluding the impact of the full valuation allowance, the Company's net deferred tax assets were $3.2 million and $3.7 million as of September 30, 2020 and December 31, 2019, respectively. The Company's deferred tax assets consists primarily of temporary differences relating to certain accrued expenses, stock-based compensation, unrealized losses and a tax benefit relating to tax goodwill.

The Company’s effective tax rate was 2.5% and 1.5% for the three months ended September 30, 2020 and 2019, respectively and 2.2% and 1.4% for the nine months ended September 30, 2020 and 2019, respectively. During the three and nine months ended September 30, 2020, the Company's effective tax rate was impacted by a full valuation allowance being provided by the Company on its projected annual net deferred tax assets as well as losses allocated to non-controlling interests which are not subject to subject to federal, state and city corporate income taxes, as well as a true-up of a return to provision adjustment. During the three and nine months ended September 30, 2019, the Company's effective tax rate was impacted primarily by losses allocated to non-controlling interests which are not subject to subject to federal, state and city corporate income taxes, as well as discrete items associated with the vesting of restricted LLC Units and payment of dividend equivalent payments on restricted stock units.

Interest expense and penalties related to income tax matters are recognized as a component of the provision for income taxes and were not significant during the three and nine months ended September 30, 2020 and 2019. As of and during the three and nine months ended September 30, 2020 and 2019, there were no uncertain tax positions taken that were not more likely than not to be sustained.

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COMPENSATION EXPENSE

9 Months Ended

Sep. 30, 2020

Retirement Benefits [Abstract]

Compensation Expense

COMPENSATION EXPENSE

Compensation generally includes salaries, bonuses, equity and profit sharing awards. Bonuses, equity and profit sharing awards are accrued over the service period to which they relate. Guaranteed payments made to the Company's senior professionals who are members of Medley LLC are recognized as compensation expense. The guaranteed payments to the Company’s Co-Chief Executive Officers are performance based and are periodically set subject to maximums based on the Company’s total assets under management. Such maximums aggregated to $0.8 million and $1.3 million during the three months ended September 30, 2020 and 2019, respectively. Such maximums aggregated to $2.3 million and $3.8 million during the nine months ended September 30, 2020 and 2019, respectively. During the three and nine months ended September 30, 2020, the Company's Co-Chief Executive Officers received guaranteed payments in the aggregate of $0.2 million and $0.8 million, respectively. Neither of the Company’s Co-Chief Executive Officers received any guaranteed payments during the three and nine months ended September 30, 2019.

Retirement Plan

The Company sponsors a defined-contribution 401(K) retirement plan that covers all employees. Employees are eligible to participate in the plan immediately, and participants are 100% vested from the date of eligibility. The Company makes contributions to the plan of 3% of an employee’s eligible wages through June 30, 2020, up to a maximum limit as determined by the Internal Revenue Service. The Company also pays all administrative fees related to the plan. During the three and nine months ended September 30, 2020, the Company's accrued contributions to the plan were less than $0.1 million and $0.3 million, respectively. During the three and nine months ended September 30, 2019, the Company's accrued contributions to the plan were less than $0.1 million and $0.4 million, respectively. As of September 30, 2020 and December 31, 2019 the Company's outstanding liability to the plan was $0.3 million and $0.4 million, respectively.

Stock-Based Compensation

In connection with the IPO of Medley Management Inc., Medley Management Inc. and Medley LLC adopted the Medley Management Inc. 2014 Omnibus Incentive Plan (as amended, the "Plan"). The purpose of the Plan is to provide a means through which the Company may attract and retain key personnel and to provide a means whereby directors, officers, employees, consultants and advisors (and prospective directors, officers, employees, consultants and advisors) of the Company can acquire and maintain an equity interest in the Company, Medley Management Inc. or be paid incentive compensation, including incentive compensation measured by reference to the value of Medley Management Inc.’s Class A common stock or Medley LLC’s unit interests, thereby strengthening their commitment to the welfare of the Company and aligning their interests with those of the Medley Management Inc.'s stockholders. The Plan provides for the issuance of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”), restricted LLC Units of Medley LLC, stock bonuses, other stock-based awards and cash awards. As the grant of these awards are primarily for the benefit of the employees of Medley LLC, stock compensation is recognized in Medley LLC's separate consolidated financial statements through a corresponding credit to members' equity (deficit), representing a capital contribution by Medley Management Inc.

The fair value of RSUs granted under the Plan is determined to be the fair value of the underlying shares on the date of grant. The fair value of restricted LLC Units of Medley LLC is based on the public share price of MDLY at date of grant, adjusted for different distribution rights. The aggregate fair value of these awards is charged to compensation expense on a straight-line basis over the vesting period, which is generally up to five years, with the exception of certain restricted LLC Units that will only vest upon certain conditions such as death, disability, termination without cause or change of control. For these awards, compensation expense is recognized when such condition is met.

During the three months ended September 30, 2020 and 2019, stock-based compensation was $1.1 million and $2.0 million, respectively. Stock-based compensation for the nine months ended September 30, 2020 and 2019 was $2.9 million and $5.2 million, respectively.

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REDEEMABLE NON-CONTROLLING INTERESTS

9 Months Ended

Sep. 30, 2020

Temporary Equity Disclosure [Abstract]

Redeemable Non-controlling Interests

REDEEMABLE NON-CONTROLLING INTERESTS

Changes in redeemable non-controlling interests during the nine months ended September 30, 2020 and 2019 is reflected in the table below (in thousands).

	For the Nine Months Ended September 30,
	2020			2019
Balance at beginning of the period	$	(748	)	$	23,186
Net loss attributable to redeemable non-controlling interests in consolidated subsidiaries	(4		)	(321		)
Distributions	—			(2,362		)
Fair value adjustment to redeemable non-controlling interests	752			—
Balance at end of the period	$	—		$	20,503

As of January 1, 2020, the Company's redeemable non-controlling interests balance was comprised of one minority interest holder's membership units in STRF Advisors LLC. As of January 1, 2019, in addition to this minority interest holder, the Company's redeemable non-controlling interests balance was also comprised of DB MED Investor I LLC and DB MED Investor II LLC (‘DB Med Investors’’) preferred interest in a joint venture, as further described below.

Redeemable Non-Controlling Interest in STRF Advisors LLC

In October 2016, the Company executed an operating agreement for STRF Advisors LLC which provided the Company with the right to redeem membership units owned by the minority interest holder, Strategic Capital Advisory Services, LLC. The Company’s redemption right is triggered by the termination of the dealer manager agreement between STRF and SC Distributors LLC, an affiliate of the minority interest holder. As a result of this redemption feature, the non-controlling interest in STRF Advisors LLC was classified as a component of redeemable non-controlling interests in the mezzanine section of the Company's condensed consolidated balance sheets.

On February 5, 2020, a termination event occurred and as a result, the Company reclassified STRF Advisors LLC s minority interest balance from redeemable non-controlling interests in the mezzanine section of its condensed consolidated balance sheet to due to former minority interest holder, net at its then current redemption value. The redemption value of the non-controlling interest was determined to be zero and was adjusted through a $0.1 million charge to members' deficit. There were no changes in its redemption value through September 30, 2020.

During the nine months ended September 30, 2020, net losses allocated to this redeemable non-controlling interest were less than $0.1 million. There were no net losses allocated to this redeemable non-controlling interest during the three months ended September 30, 2020. During each of the three and nine months ended September 30, 2019, net losses allocated to this redeemable non-controlling interest were less than $0.1 million. As of September 30, 2020, the balance of this redeemable non-controlling interest was zero.

Redeemable Non-Controlling Interests in Joint Venture

On June 3, 2016, the Company entered into a Master Investment Agreement with DB Med Investors to invest up to $50.0 million in new and existing Medley managed funds (the ‘‘Joint Venture’’). The Company agreed to contribute up to $10.0 million and an interest in STRF Advisors LLC, the investment advisor to STRF, in exchange for common equity interests in the Joint Venture. On June 6, 2017, the Company entered into an amendment to its Master Investment Agreement with the Investors, which provided for, among other things, an increase in the Company’s capital contribution to up to $13.8 million and extended the term of the Joint Venture from seven to ten years. DB Med Investors agreed to invest up to $40.0 million in exchange for preferred equity interests in the Joint Venture. Total contributions to the Joint Venture amounted to $53.8 million and were used to purchase $51.8 million of MCC shares on the open market and seed fund $2.0 million to STRF. On account of the preferred equity interests, DB Med Investors was entitled to receive an 8% preferred distribution, 15% of the Joint Venture’s profits, and all of the profits from the contributed interest in STRF Advisors LLC. The Company could make a capital contribution to fund the 8% preferred distribution but was limited to one contribution in any rolling twelve month period without the prior written consent of DB Med Investors. Medley had the option, subject to certain conditions, to cause the Joint Venture to redeem the DB Med Investors’ interests in exchange for repayment of the outstanding investment amount at the time of redemption, plus certain other considerations. DB Med Investors had the right, after ten years, to redeem their interests in the Joint Venture. DB Med Investors also had the right upon the occurrence of certain events (the "Put Option Trigger Event") to redeem their interests in the Joint Venture. Upon a Put Option Trigger Event DB Med Investors have the right to exercise a put option in which they would be entitled to put their preferred interests back to the Joint Venture. The Joint Venture can satisfy the put in cash or in kind in an amount equal to the amount necessary to satisfy the Fund Share Interest Redemption Price, as defined.

Total contributions to the Joint Venture amounted to $53.8 million through September 30, 2019 and were used to purchase $51.8 million of MCC shares on the open market and seed fund $2.0 million to STRF. During the three months ended September 30, 2019, income allocated to this non-controlling interest was $1.7 million. During the nine months ended September 30, 2019, losses allocated to this non-controlling interest was $0.3 million. Distributions paid to this non-controlling interest during the three and nine months ending September 30, 2019 were $0.8 million and $2.4 million, respectively.

In October 2019, the Joint Venture did not make the 8% preferred distribution resulting in a Put Option Trigger Event. On October 22, 2019, Medley LLC, Medley Seed Funding I LLC (“Seed Funding I”), Medley Seed Funding II LLC (“Seed Funding II”), and Medley Seed Funding III LLC (“Seed Funding III”) received notice from DB Med Investors that they exercised their put option rights under the amended Master Investment Agreement (the “Agreement”). In connection with the exercise of DB Med Investors put option right, the Company reclassified the Joint Venture's minority interest balance from redeemable non-controlling interests in the mezzanine section of its consolidated balance sheet to due to DB Med Investors (Note 11), a component of accounts payable, accrued expenses and other liabilities, at its then fair value. As a result of this reclassification, there was no redeemable non-controlling interest balance at December 31, 2019 or periods ended thereafter.

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MARKET AND OTHER RISK FACTORS

9 Months Ended

Sep. 30, 2020

Risks and Uncertainties [Abstract]

Market and Other Risk Factors

MARKET AND OTHER RISK FACTORS

Due to the nature of the Medley funds’ investment strategy, their portfolio of investments has significant market and credit risk. As a result, the Company is subject to market and other risk factors, including, but not limited to the following:

COVID-19

On March 11, 2020, the World Health Organization declared the spread of COVID-19 a pandemic. In response, on March 27, 2020 the President of the United States signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act into law and the United States Congress continues to discuss additional stimulus measures. Several governments in jurisdictions that encompass the Company’s offices and operations have implemented extended strict social distancing measures. In response, the Company has implemented remote work arrangements for virtually all of its employees and restricted business travel. These arrangements have not materially affected our ability to maintain and conduct our business operations, including the operation of financial reporting systems, internal controls over financial reporting, and disclosure controls and procedures. While the COVID-19 pandemic has adversely affected the global economy, the nature and extent of COVID-19’s effect on the Company’s operational and financial performance will depend on future developments, including the course of the pandemic, the success of governments in relaxing social distancing measures and restarting economic activity, the efficacy of monetary and fiscal measures taken or that may be taken in the future, and the potential for structural damage to the economy due to the sharp drop in aggregate demand and, particularly in the U.S., a high level of unemployment, all of which are uncertain and difficult to predict considering the rapidly evolving landscape.

Market Risk

The market price of investments may significantly fluctuate during the period of investment. Investments may decline in value due to factors affecting securities markets generally or particular industries represented in the securities markets. The value of an investment may decline due to general market conditions that are not specifically related to such investment, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or currency rates or adverse investor sentiment generally. They may also decline due to factors that affect a particular industry or industries, such as labor shortages or increased production costs and competitive conditions within an industry. 

Credit Risk

There are no restrictions on the credit quality of the investments the Company intends to make. Investments may be deemed by nationally recognized rating agencies to have substantial vulnerability to default in payment of interest and/or principal. Some investments may have low-quality ratings or be unrated. Lower rated and unrated investments have major risk exposure to adverse conditions and are considered to be predominantly speculative. Generally, such investments offer a higher return potential than higher rated investments, but involve greater volatility of price and greater risk of loss of income and principal.

In general, the ratings of nationally recognized rating organizations represent the opinions of agencies as to the quality of the securities they rate. Such ratings, however, are relative and subjective; they are not absolute standards of quality and do not evaluate the market value risk of the relevant securities. It is also possible that a rating agency might not change its rating of a particular issue on a timely basis to reflect subsequent events. The Company may use these ratings as initial criteria for the selection of portfolio assets for the Company but is not required to utilize them.

Limited Liquidity of Investments

The funds managed by the Company invest and intend to continue to invest in investments that may not be readily marketable. Illiquid investments may trade at a discount from comparable, more liquid investments and, at times there may be no market at all for such investments. Subordinate investments may be less marketable, or in some instances illiquid, because of the absence of registration under federal securities laws, contractual restrictions on transfer, the small size of the market or the small size of the issue (relative to issues of comparable interests). As a result, the funds managed by the Company may encounter difficulty in selling its investments or may, if required to liquidate investments to satisfy redemption requests of its investors or debt service obligations, be compelled to sell such investments at less than fair value. 

Counterparty Risk

Some of the markets in which the Company, on behalf of its underlying funds, may affect its transactions are “over-the-counter” or “interdealer” markets. The participants in such markets are typically not subject to credit evaluation and regulatory oversight, unlike members of exchange-based markets. This exposes the Company to the risk that a counterparty will not settle a transaction in accordance with its terms and conditions because of a dispute over the terms of the applicable contract (whether or not such dispute is bona fide) or because of a credit or liquidity problem, causing the Company to suffer loss. Such “counterparty risk” is accentuated for contracts with longer maturities where events may intervene to prevent settlement, or where the Company has concentrated its transactions with a single or small group of counterparties.

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SUBSEQUENT EVENTS

9 Months Ended

Sep. 30, 2020

Subsequent Events [Abstract]

Subsequent Events

SUBSEQUENT EVENTS

Management has evaluated subsequent events through the date of issuance of these condensed consolidated financial statements included herein. There have been no subsequent events that occurred during such period that would require disclosure in this Form 10-Q, other than those events disclosed elsewhere in the condensed consolidated financial statements, or would be required to be recognized in the condensed consolidated financial statements as of and for the nine months ended September 30, 2020.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

9 Months Ended

Sep. 30, 2020

Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation

The accompanying consolidated financial statements have been prepared on the accrual basis of accounting in conformity with U.S. generally accepted accounting principles (“GAAP”) and includes the accounts of Medley LLC and its consolidated subsidiaries. Intercompany balances and transactions have been eliminated in consolidation.

Principles of Consolidation

Principles of Consolidation

In accordance with Accounting Standards Codification (“ASC”) 810, Consolidation, the Company consolidates those entities where it has a direct and indirect controlling financial interest based on either a variable interest model or voting interest model. As such, the Company consolidates entities that the Company concludes are variable interest entities (“VIEs”), for which the Company is deemed to be the primary beneficiary and entities in which it holds a majority voting interest or has majority ownership and control over the operational, financial and investing decisions of that entity.

For legal entities evaluated for consolidation, the Company must determine whether the interests that it holds and fees paid to it qualify as a variable interest in an entity. This includes an evaluation of the management fee and performance fee paid to the Company when acting as a decision maker or service provider to the entity being evaluated. If fees received by the Company are customary and commensurate with the level of services provided, and the Company does not hold other economic interests in the entity that would absorb more than an insignificant amount of the expected losses or returns of the entity, the interest that the Company holds would not be considered a variable interest. The Company factors in all economic interests including proportionate interests through related parties, to determine if fees are considered a variable interest.

An entity in which the Company holds a variable interest is a VIE if any one of the following conditions exist: (a) the total equity investment at risk is not sufficient to permit the legal entity to finance its activities without additional subordinated financial support, (b) the holders of the equity investment at risk have the right to direct the activities of the entity that most significantly impact the legal entity’s economic performance, or (c) the voting rights of some investors are disproportionate to their obligation to absorb losses or rights to receive returns from a legal entity. For limited partnerships and other similar entities, non-controlling investors must have substantive rights to either dissolve the fund or remove the general partner (“kick-out rights”) in order to not qualify as a VIE.

For those entities that qualify as a VIE, the primary beneficiary is generally defined as the party who has a controlling financial interest in the VIE. The Company is generally deemed to have a controlling financial interest if it has the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, and the obligation to absorb losses or receive benefits from the VIE that could potentially be significant to the VIE. The Company determines whether it is the primary beneficiary of a VIE at the time it becomes initially involved with the VIE and reconsiders that conclusion continuously. The primary beneficiary evaluation is generally performed qualitatively on the basis of all facts and circumstances. However, quantitative information may also be considered in the analysis, as appropriate. These assessments require judgment. Each entity is assessed for consolidation on a case-by-case basis. 

For those entities evaluated under the voting interest model, the Company consolidates the entity if it has a controlling financial interest. The Company has a controlling financial interest in a voting interest entity (“VOE”) if it owns a majority voting interest in the entity.

Consolidated and Non-Consolidated Variable Interest Entities

Consolidated Variable Interest Entities

As of September 30, 2020, Medley LLC had four subsidiaries, Medley Caddo Investors Holdings 1 LLC, Medley Avantor Investors LLC, Medley Cloverleaf Investors LLC and Medley Real D Investors LLC, which are consolidated VIEs. Each of these entities was organized as a limited liability company and was legally formed to either manage a designated fund or to strategically invest capital as well as isolate business risk. As of September 30, 2020, total assets and total liabilities, after eliminating entries, of these VIEs reflected in the consolidated balance sheets were $0.9 million and less than $0.1 million, respectively. As of December 31, 2019, Medley LLC had seven subsidiaries, Medley Seed Funding I LLC, Medley Seed Funding II LLC, STRF Advisors LLC, Medley Caddo Investors Holdings 1 LLC, Medley Avantor Investors LLC, Medley Cloverleaf Investors LLC and Medley Real D Investors LLC. As of December 31, 2019, total assets and total liabilities, after eliminating entries, of these VIEs reflected in the consolidated balance sheets were $1.2 million and less than $0.1 million, respectively. Except to the extent of the assets of these VIEs that are consolidated, the holders of the consolidated VIEs’ liabilities generally do not have recourse to the Company.

Non-Consolidated Variable Interest Entities

The Company holds interests in certain VIEs that are not consolidated because the Company is not deemed to be the primary beneficiary. The Company's interest in these entities is in the form of insignificant equity interests and fee arrangements. The maximum exposure to loss represents the potential loss of assets by the Company relating to these non-consolidated entities.

Seed Investments

Seed Investments and Deconsolidation of Consolidated Fund

The Company accounts for seed investments through the application of the voting interest model under ASC 810-10-25-1 through 25-14 and consolidates a seed investment when the investment advisor holds a controlling interest, which is, in general, 50% or more of the equity in such investment. For seed investments in which the Company does not hold a controlling interest, the Company accounts for such seed investment under the equity method of accounting, at its ownership percentage of such seed investment’s net asset value.

Concentration of Credit and Market Risk

Concentration of Credit and Market Risk

In the normal course of business, the Company's underlying funds encounter significant credit and market risk. Credit risk is the risk of default on investments in debt securities, loans and derivatives that result from a borrower's or derivative counterparty's inability or unwillingness to make required or expected payments. Credit risk is increased in situations where the Company's underlying funds are investing in distressed assets or unsecured or subordinate loans or in securities that are a material part of its respective business. Market risk reflects changes in the value of investments due to changes in interest rates, credit spreads or other market factors. The Company's underlying funds may make investments outside of the United States. These non-U.S. investments are subject to the same risks associated with U.S. investments, as well as additional risks, such as fluctuations in foreign currency exchange rates, unexpected changes in regulatory requirements, heightened risk of political and economic instability, difficulties in managing the investments, potentially adverse tax consequences, and the burden of complying with a wide variety of foreign laws.

Use of Estimates

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Management’s estimates are based on historical experience and other factors, including expectations of future events that management believes to be reasonable under the circumstances. These assumptions and estimates also require management to exercise judgment in the process of applying the Company’s accounting policies. Significant estimates and assumptions by management affect the carrying value of investments, deferred tax assets, performance compensation payable and certain accrued liabilities. Actual results could differ from these estimates, and such differences could be material.

Indemnification

Indemnification

In the normal course of business, the Company enters into contractual agreements that provide general indemnifications against losses, costs, claims and liabilities arising from the performance of individual obligations under such agreements. The Company has not experienced any prior claims or payments pursuant to such agreements. The Company’s individual maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Company that have not yet occurred. However, based on management’s experience, the Company expects the risk of loss to be remote.

Non-Controlling Interests in Consolidated Subsidiaries and Redeemable Non-Controlling Interests

Non-Controlling Interests in Consolidated Subsidiaries

Non-controlling interests in consolidated subsidiaries represent the component of equity in such consolidated entities held by third-parties and certain employees. These interests are adjusted for contributions to and distributions from Medley entities and are allocated income or loss from Medley entities based on their ownership percentages. 

Redeemable Non-Controlling Interests

Redeemable non-controlling interests represents interests of certain third parties that are not mandatorily redeemable but redeemable for cash or other assets at a fixed or determinable price or a fixed or determinable date, at the option of the holder or upon the occurrence of an event that is not solely within the control of the Company. These interests are classified in the mezzanine section on the Company's consolidated balance sheets.

Cash and Cash Equivalents

Cash and Cash Equivalents

Cash and cash equivalents include liquid investments in money market funds and demand deposits. The Company had cash balances with financial institutions in excess of Federal Deposit Insurance Corporation insured limits as of September 30, 2020 and December 31, 2019. The Company monitors the credit standing of these financial institutions and has not experienced, and has no expectations of experiencing, any losses with respect to such balances.

Investments

Investments

Investments include equity method investments that are not consolidated but over which the Company exerts significant influence. The Company measures the carrying value of its privately-held equity method investments by recording its share of the earnings or losses of its investee in the periods for which they are reported by the investee in the investee's financial statements rather than in the period in which an investee declares a dividend or distribution. For the Company's public non-traded equity method investment, it measures the carrying value of such investment at Net Asset Value ("NAV") per share. Unrealized appreciation (depreciation) resulting from changes in fair value of the equity method investments is reflected as a component of investment income in the consolidated statements of operations along with the income and expense allocations from such investments.

The carrying amounts of equity method investments are reflected in Investments, at fair value on the Company's consolidated balance sheets. As the underlying entities that the Company manages and invests in are, for U.S. GAAP purposes, primarily investment companies which reflect their investments at estimated fair value, the carrying value of the Company’s equity method investments in such entities approximates fair value. The Company evaluates its equity-method investments for impairment whenever events or changes in circumstances indicate that the carrying amounts of such investments may not be recoverable.

For presentation in its consolidated statements of cash flows, the Company treats distributions received from certain equity method investments using the cumulative earnings approach. Under the cumulative earnings approach, an investor would compare the distributions received to its cumulative equity-method earnings since inception. Any distributions received up to the amount of cumulative equity earnings would be considered a return on investment and classified in operating activities. Any excess distributions would be considered a return of investment and classified in investing activities.

Investments also include publicly traded common stock. The Company measures the fair value of its publicly traded common stock at the quoted market price on the primary market or exchange on which the underlying shares trade. Any realized gains (losses) from the sale of investments and unrealized appreciation (depreciation) resulting from changes in fair value are recorded in other income (expense), net.

Investments of Consolidated Fund

In accordance with ASC 820, Fair Value Measurements and Disclosures, the Company's consolidated fund at December 31, 2019 has categorized its investments carried at fair value, based on the priority of the valuation technique, into a three-level fair value hierarchy as discussed in Note 5. Fair value is a market-based measure considered from the perspective of the market participant who holds the financial instrument rather than an entity specific measure. Investments for which market quotations are readily available are valued at such market quotations, which are generally obtained from an independent pricing service or multiple broker-dealers or market makers. The consolidated fund weighs the use of third-party broker quotations, if any, in determining fair value based on management's understanding of the level of actual transactions used by the broker to develop the quote and whether the quote was an indicative price or binding offer. However, debt investments with remaining maturities within 60 days that are not credit impaired are valued at cost plus unamortized discount, or minus amortized premium, which approximates fair value. Investments for which market quotations are not readily available are valued at fair value as determined by the consolidated fund’s board of trustees based upon input from management and third party valuation firms. Because these investments are illiquid and because there may not be any directly comparable companies whose financial instruments have observable market values, these loans are valued using a fundamental valuation methodology, consistent with traditional asset pricing standards, that is objective and consistently applied across all loans and through time. As a result of the transfer of STRF shares to DB Med Investors on April 6, 2020, the Company no longer consolidates STRF in its consolidated financial statements.

Revenues

Revenues

The Company recognizes revenue in accordance with ASC 606, Revenues from Contracts with Customers. The Company recognizes revenue under the core principle of depicting the transfer of promised goods or services to customers in an amount that reflects the consideration to which it expects to be entitled in exchange for such goods or services. To achieve this, the Company applies a five step approach: (1) identify the contract(s) with a customer, (2) identify the performance obligations within the contract, (3) determine the transaction price, (4) allocate the transaction price to the separate performance obligations and (5) recognize revenue when, or as, each performance obligation is satisfied.

Carried interest are performance-based fees that represent a capital allocation of income to the general partner or investment manager. Such fees are accounted for under ASC 323, Investments - Equity Method and Joint Ventures and, therefore, are not in the scope of ASC 606.

Management Fees

Medley provides investment management services to both public and private investment vehicles. Management fees include base management fees, other management fees, and Part I incentive fees, as described below.

Base management fees are calculated based on either (i) the average or ending gross assets balance for the relevant period, (ii) limited partners’ capital commitments to the funds, (iii) invested capital, (iv) NAV or (v) lower of cost or market value of a fund’s portfolio investments. Depending upon the contracted terms of the investment management agreement, management fees are paid either quarterly in advance or quarterly in arrears, and are recognized as earned over the period the services are provided. 

Certain management agreements provide for Medley to receive other management fee revenue derived from up front origination fees paid by the funds' and/or separately managed accounts' underlying portfolio companies. These fees are recognized when the Company becomes entitled to such fees.

Certain management agreements also provide for Medley to receive Part I incentive fee revenue derived from net investment income (excluding gains and losses) above a hurdle rate. As it relates to MCC, these fees are subject to netting against realized and unrealized losses. Part I incentive fees are paid quarterly and are recognized as earned in the period the services are provided.

Performance Fees

Performance fees are contractual fees which do not represent a capital allocation of income to the general partner or investment manager that are earned based on the performance of certain funds, typically, the Company’s separately managed accounts. Performance fees are earned based on each fund's performance during the period, subject to the achievement of minimum return levels in accordance with the respective terms set out in each fund’s investment management agreement.

Other Revenues and Fees

Medley provides administrative services to certain affiliated funds and is reimbursed for direct and allocated expenses incurred in providing such administrative services, as set forth in the respective underlying agreements. These fees are recognized as revenue in the period administrative services are rendered. Medley also acts as the administrative agent on certain deals for which Medley may earn loan administration fees and transaction fees. Medley may also earn consulting fees for providing non-advisory services related to its managed funds. These fees are recognized as revenue over the period the services are performed.

Investment Income (loss) - Carried Interest

Carried interest are performance-based fees that represent a capital allocation of income to the general partner or investment manager. Carried interest are allocated to the Company based on cumulative fund performance to date, subject to the achievement of minimum return levels in accordance with the respective terms set out in each fund’s governing documents and are accounted for under the equity method of accounting. Accordingly, these performance fees are reflected as carried interest within investment income on the Company's consolidated statements of operations and balances due for such fees are included as a part of equity method investments within Investments, at fair value on the Company's consolidated balance sheets.

The Company records carried interest based upon an assumed liquidation of that fund's net assets as of the reporting date, regardless of whether such amounts have been realized. For any given period, carried interest on the Company's consolidated statements of operations may include reversals of previously recognized carried interest due to a decrease in the value of a particular fund that results in a decrease of cumulative fees earned to date. Since fund return hurdles are cumulative, previously recognized carried interest also may be reversed in a period of appreciation that is lower than the particular fund's hurdle rate.

Carried interest received in prior periods may be required to be returned by the Company in future periods if the funds’ investment performance declines below certain levels. Each fund is considered separately in this regard and, for a given fund, carried interest can never be negative over the life of a fund. If upon a hypothetical liquidation of a fund’s investments, at their then current fair values, previously recognized and distributed carried interest would be required to be returned, a liability is established for the potential clawback obligation. During the three and nine months ended September 30, 2020, the Company received carried interest distributions of $0.1 million and $0.2 million, respectively. Prior to these distributions, the Company received a carried interest distribution of $0.3 million from one of its managed funds, which had been fully liquidated as of December 31, 2019. In addition to thereceipt of these distributions, the Company has also received tax distributions related to the Company’s allocation of net income, which included an allocation of carried interest. Pursuant to the organizational documents of each respective fund, a portion of these tax distributions may be subject to clawback. As of September 30, 2020 and December 31, 2019, the Company had accrued $7.2 million for clawback obligations that would need to be paid if the funds were liquidated at fair value as of the end of the reporting period. The Company’s actual obligation, however, would not become payable or realized until the end of a fund’s life.

During each of the three and nine months ended September 30, 2020 and 2019, the the Company recorded reversals of previously recognized carried interest of $0.1 million.

Investment Income (loss) - Other

Other investment income is comprised of unrealized appreciation (depreciation) resulting from changes in fair value of the Company's equity method investments in addition to the income and expense allocations from such investments.

Stock-based Compensation

Stock-based Compensation

Stock-based compensation expense relating to equity based awards are measured at fair value as of the grant date, reduced for actual forfeitures in the period they occur, and expensed over the requisite service period on a straight-line basis as a component of compensation and benefits on the Company's consolidated statements of operations.

Income Taxes

Income Taxes

The Company accounts for income taxes using the asset and liability approach, which requires the recognition of tax benefits or expenses for temporary differences between the financial reporting and tax basis of assets and liabilities. A valuation allowance is established when necessary to reduce deferred tax assets to the amounts expected to be realized. The Company also recognizes a tax benefit from uncertain tax positions only if it is “more likely than not” that the position is sustainable based on its technical merits. The Company’s policy is to recognize interest and penalties on uncertain tax positions and other tax matters as a component of its provision for income taxes. For interim periods, the Company accounts for income taxes based on its estimate of the effective tax rate for the year. Discrete items and changes in its estimate of the annual effective tax rate are recorded in the period in which they occur.

As the Company is treated as a partnership for income tax purposes, it is not subject to U.S. federal, state and local income taxes since all income, gains and losses are passed through to its members. However, a portion of taxable income from Medley LLC and its subsidiaries are subject to New York City's unincorporated business tax, which is included in the Company's provision for income taxes.

Recently Issued Accounting Pronouncements Adopted and Not Yet Adopted

Recently Issued Accounting Pronouncements Adopted as of January 1, 2020

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. This ASU modifies the disclosure requirements in Topic 820, Fair Value Measurement, by removing certain disclosure requirements related to the fair value hierarchy, modifying existing disclosure requirements related to measurement uncertainty, and adding new disclosure requirements. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. The Company adopted this ASU effective January 1, 2020 and the impact was not material.

In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force). This ASU aligns the accounting for costs incurred to implement a cloud computing arrangement that is a service arrangement with the guidance on capitalizing costs associated with developing or obtaining internal-use software. It addresses when costs should be capitalized rather than expensed, the term to use when amortizing capitalized costs, and how to evaluate the unamortized portion of these capitalized implementation costs for impairment. This ASU also includes guidance on how to present implementation costs in the financial statements and creates additional disclosure requirements. The accounting for the service element of a hosting arrangement that is a service contract is not affected by these amendments. Early adoption is permitted and can be applied either retrospectively or prospectively. The Company adopted this ASU on January 1, 2020 and has applied this new ASU on a prospective basis, and the impact was not material.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.

The guidance in this ASU clarifies and amends existing guidance. It is effective for public entities for annual reporting periods beginning after December 15, 2020 and interim periods within those reporting periods, with early adoption permitted. The Company adopted this guidance on January 1, 2020 and the impact was not material.

Recently Issued Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments in this ASU require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts and requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The amendments in this ASU are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. This ASU is effective for the Company on January 1, 2021 and will be adopted prospectively. The Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.

The Company does not believe any other recently issued, but not yet effective, revisions to authoritative guidance will have a material effect on its consolidated balance sheets, results of operations or cash flows.

Fair Value Measurements

Fair value is the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where available, fair value is based on observable market prices or parameters, or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models are applied. These valuation models involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments’ complexity. The Company’s fair value analysis includes an analysis of the value of any unfunded loan commitments. Financial investments recorded at fair value in these condensed consolidated financial statements are categorized for disclosure purposes based upon the level of judgment associated with the inputs to the valuation of the investment as of the measurement date. Investments which are valued using NAV as a practical expedient are excluded from this hierarchy:

• Level I – Valuations based on quoted prices in active markets for identical assets or liabilities at the measurement date.

• Level II – Valuations based on inputs other than quoted prices in active markets included in Level I, which are either directly or indirectly observable at the measurement date. This category includes quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in non-active markets including actionable bids from third parties for privately held assets or liabilities, and observable inputs other than quoted prices such as yield curves and forward currency rates that are entered directly into valuation models to determine the value of derivatives or other assets or liabilities.

• Level III – Valuations based on inputs that are unobservable and where there is little, if any, market activity at the measurement date. The inputs for the determination of fair value may require significant management judgment or estimation and are based upon management’s assessment of the assumptions that market participants would use in pricing the assets and liabilities. These investments include debt and equity investments in private companies or assets valued using the Market or Income Approach and may involve pricing models whose inputs require significant judgment or estimation because of the absence of any meaningful current market data for identical or similar investments. The inputs in these valuations may include, but are not limited to, capitalization and discount rates, beta and EBITDA multiples. The information may also include pricing information or broker quotes which include a disclaimer that the broker would not be held to such a price in an actual transaction. The non-binding nature of consensus pricing and/or quotes accompanied by disclaimer would result in classification as Level III information, assuming no additional corroborating evidence.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

9 Months Ended

Sep. 30, 2020

Accounting Policies [Abstract]

Condensed Balance Sheet of STRF

The condensed balance sheet of STRF as of December 31, 2019 is presented in the table below.

	As of
	December 31, 2019
Assets	(in thousands)
Cash and cash equivalents	$	682
Investments, at fair value	1,441
Other assets	29
Total assets	$	2,152
Liabilities and Equity
Accounts payable, accrued expenses and other liabilities	$	342
Equity	1,810
Total liabilities and equity	$	2,152

The condensed balance sheet of STRF, as of April 6, 2020, is presented in the table below.

	As of
	April 6, 2020
Assets	(in thousands)
Cash and cash equivalents	$	471
Investments, at fair value	1,016
Other assets	76
Total assets	$	1,563
Liabilities and Equity
Accounts payable, accrued expenses and other liabilities	$	39
Equity	1,524
Total liabilities and equity	$	1,563

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REVENUES FROM CONTRACTS WITH CUSTOMERS (Tables)

9 Months Ended

Sep. 30, 2020

Revenue from Contract with Customer [Abstract]

Summary of Revenue from Contracts with Customers Disaggregated by Type of Customer

The following table presents the Company's revenue from contracts with customers disaggregated by type of customer for the three and nine months ended September 30, 2019:

	Permanent Capital Vehicles		Long-dated Private Funds		SMAs		Other		Total
	(in thousands)
For the three months ended September 30, 2019
Management fees	$	6,593	$	1,616	$	1,398	$	—	$	9,607
Other revenues and fees	2,075		—		—		546		2,621
Total revenues from contracts with customers	$	8,668	$	1,616	$	1,398	$	546	$	12,228
For the nine months ended September 30, 2019
Management fees	$	21,144	$	5,185	$	4,399	$	—	$	30,728
Other revenues and fees	5,327		—		—		2,404		7,731
Total revenues from contracts with customers	$	26,471	$	5,185	$	4,399	$	2,404	$	38,459

The following table presents the Company's revenue from contracts with customers disaggregated by type of customer for the three and nine months ended September 30, 2020:

	Permanent Capital Vehicles		Long-dated Private Funds		SMAs		Other		Total
	(in thousands)
For the three months ended September 30, 2020
Management fees	$	4,045	$	1,097	$	1,133	$	—	$	6,275
Other revenues and fees	1,192		—		—		443		1,635
Total revenues from contracts with customers	$	5,237	$	1,097	$	1,133	$	443	$	7,910
For the nine months ended September 30, 2020
Management fees	$	12,855	$	3,633	$	3,319	$	—	$	19,807
Other revenues and fees	4,426		—		—		1,843		6,269
Total revenues from contracts with customers	$	17,281	$	3,633	$	3,319	$	1,843	$	26,076

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INVESTMENTS (Tables)

9 Months Ended

Sep. 30, 2020

Schedule of Investments [Abstract]

Composition of Investments

Investments consist of the following:

	As of
	September 30, 2020		December 31, 2019
	(in thousands)
Equity method investments, at fair value	$	9,589	$	11,650
Investment held at cost less impairment	48		196
Investments of consolidated fund	—		1,441
Total investments, at fair value	$	9,637	$	13,287

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FAIR VALUE MEASUREMENTS (Tables)

9 Months Ended

Sep. 30, 2020

Fair Value Disclosures [Abstract]

Summary of Fair Value Hierarchy of Financial Assets Measured at Fair Value

The following tables summarize the fair value hierarchy of the Company's financial assets and liabilities measured at fair value as of December 31, 2019:

	As of December 31, 2019
	Level I		Level II		Level III		Total
Assets	(in thousands)
Investments of consolidated fund	$	110	$	—	$	1,331	$	1,441
Total Assets	$	110	$	—	$	1,331	$	1,441
Liabilities
Due to DB Med Investors (Note 11)	$	—	$	—	$	1,750	$	1,750
Total Liabilities	$	—	$	—	$	1,750	$	1,750

Summary of Changes in Fair Value of Financial Assets Categorized within Level 3

The following is a summary of changes in fair value of the Company's financial assets that have been categorized within Level III of the fair value hierarchy:

	Level III Financial Assets as of September 30, 2020
	Balance at December 31, 2019		Deconsolidation of STRF		Transfers In or (Out) of Level III	Realized and Unrealized Depreciation		Sale of Level III Assets		Balance at September 30, 2020
	(in thousands)
Investments of consolidated fund	$	1,331	(940	)	—	(295	)	(96	)	$	—

Summary of Changes in Fair Value of Financial Liabilities Categorized within Level 3

The following is a summary of changes in fair value of the Company's financial liabilities that have been categorized within Level III of the fair value hierarchy:

	Level III Financial Liabilities as of September 30, 2020
	Balance at December 31, 2019		Settlement of liability to DB Med Investors, at fair value		Payments	Realized and Unrealized Depreciation		Balance at September 30, 2020
	(in thousands)
Due to DB Med Investors (Note 11)	$	1,750	(1,541	)	—	(209	)	$	—

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LEASES (Tables)

9 Months Ended

Sep. 30, 2020

Leases [Abstract]

Summary of Components of Lease Cost and Supplemental Balance Sheet and Other Information Related to Leases

The components of lease cost and other information during the three and nine months ended September 30, 2020 and 2019 are as follows:

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2020			2019			2020			2019
Lease cost	(in thousands)
Operating lease costs	$	634		$	637		$	1,914		$	1,895
Variable lease costs	—			—			—			—
Sublease income	(110		)	(113		)	(329		)	(342		)
Total lease cost	$	524		$	524		$	1,585		$	1,553

Supplemental balance sheet information related to leases as of September 30, 2020 and December 31, 2019 is as follows:

	As of
	September 30, 2020		December 31, 2019
Weighted-average remaining lease term (in years)	2.8		3.5
Weighted-average discount rate	8.2	%	8.2	%

Summary of Future Payments for Operating Leases

Future payments for operating leases as of September 30, 2020 are as follows (in thousands):

Remaining in 2020 (October 1st through December 31st)	$	728
2021	3,288
2022	2,441
2023	1,823
Total future lease payments	8,280
Less imputed interest	(860		)
Operating lease liabilities, at September 30, 2020	$	7,420

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OTHER ASSETS (Tables)

9 Months Ended

Sep. 30, 2020

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]

Components of Other Assets

Other assets consist of the following:

	As of
	September 30, 2020		December 31, 2019
	(in thousands)
Fixed assets, net of accumulated depreciation and amortization of $4,386 and $3,847, respectively	$	2,041	$	2,564
Security deposits	1,975		1,975
Administrative fees receivable (Note 13)	1,252		1,073
Due from affiliates (Note 13)	1,829		2,693
Prepaid expenses and income taxes	2,674		746
Other assets	302		676
Total other assets	$	10,073	$	9,727

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SENIOR UNSECURED DEBT (Tables)

9 Months Ended

Sep. 30, 2020

Debt Disclosure [Abstract]

Schedule of Senior Unsecured Debt

The carrying value of the Company’s senior unsecured debt consists of the following:

	As of
	September 30, 2020		December 31, 2019
	(in thousands)
2026 Notes, net of unamortized discount and debt issuance costs of $2,308 and $2,584, respectively	$	51,287	$	51,011
2024 Notes, net of unamortized premium and debt issuance costs of $1,329 and $1,629 respectively	67,671		67,371
Total senior unsecured debt	$	118,958	$	118,382

Loans payable consist of the following:

	As of
	September 30, 2020		December 31, 2019
	(in thousands)
Non-recourse promissory notes	$	10,000	$	10,000
Total loans payable	$	10,000	$	10,000

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LOANS PAYABLE (Tables)

9 Months Ended

Sep. 30, 2020

Debt Disclosure [Abstract]

Schedule of Loans Payable

The carrying value of the Company’s senior unsecured debt consists of the following:

	As of
	September 30, 2020		December 31, 2019
	(in thousands)
2026 Notes, net of unamortized discount and debt issuance costs of $2,308 and $2,584, respectively	$	51,287	$	51,011
2024 Notes, net of unamortized premium and debt issuance costs of $1,329 and $1,629 respectively	67,671		67,371
Total senior unsecured debt	$	118,958	$	118,382

Loans payable consist of the following:

	As of
	September 30, 2020		December 31, 2019
	(in thousands)
Non-recourse promissory notes	$	10,000	$	10,000
Total loans payable	$	10,000	$	10,000

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DUE TO FORMER MINORITY INTEREST HOLDER (Tables)

9 Months Ended

Sep. 30, 2020

Debt Disclosure [Abstract]

Schedule of Former Minority Interest

This balance consists of the following:

	As of
	September 30, 2020		December 31, 2019
	(in thousands)
Due to former minority interest holder, net of unamortized discount of $817 and $1,480, respectively	$	7,233	$	8,145
Total due to former minority interest holder	$	7,233	$	8,145

Schedule of Future Payments Due to Former Minority Interest Holder

As of September 30, 2020, future payments due to the former minority interest holder, including principal and implied interest, were as follows (in thousands):

Remaining in 2020 (October 1st through December 31st)	$	350
2021	2,700
2022	4,000
2023	1,000
Total future payments	$	8,050

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ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER LIABILITIES (Tables)

9 Months Ended

Sep. 30, 2020

Payables and Accruals [Abstract]

Components of Accounts Payable, Accrued Expenses and Other Liabilities

Accounts payable, accrued expenses and other liabilities consist of the following:

	As of
	September 30, 2020		December 31, 2019
	(in thousands)
Accrued compensation and benefits	$	3,496	$	6,161
Due to affiliate (Note 13)	7,224		7,212
Revenue share payable (Note 12)	7,292		2,316
Accrued interest	1,294		1,294
Professional fees	4,169		1,481
Due to DB Med Investors, at fair value	—		1,750
Accounts payable and other accrued expenses	2,467		1,672
Total accounts payable, accrued expenses and other liabilities	$	25,942	$	21,886

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RELATED PARTY TRANSACTIONS (Tables)

9 Months Ended

Sep. 30, 2020

Related Party Transactions [Abstract]

Schedule of Total Revenues and Amounts Due from Related Parties

Total revenues recorded under these agreements during the three and nine months ended September 30, 2020 and 2019 are reflected in the table below:

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2020		2019		2020		2019
	(in thousands)
MCC Admin Agreement	$	465	$	822	$	1,747	$	2,437
SIC Admin Agreement	432		980		1,803		2,158
Fund Admin Agreements	295		273		876		732
Total administrative fees from related parties	$	1,192	$	2,075	$	4,426	$	5,327

Amounts due from related parties under these agreements are reflected in the table below.

	As of
	September 30, 2020		December 31, 2019
	(in thousands)
Amounts due from MCC under the MCC Admin Agreement	$	518	$	444
Amounts due from SIC under the SIC Admin Agreement	439		382
Amounts due from entities under the Fund Admin Agreements	295		247
Total administrative fees receivable	$	1,252	$	1,073

These costs are normally reimbursed by such funds and are included in due from affiliates, a component of other assets on the Company's condensed consolidated balance sheets. Amounts due from affiliates are reflected in the table below.

Additionally, in connection with the amended and restated limited liability agreement of Medley LLC, Medley LLC agreed to, at the sole discretion of the managing member, reimburse Medley Management Inc. for all expenses incurred, other than expenses incurred in connection with its income tax obligations. From time to time, the company may also advance funds to Medley to cover its operating needs. For the three and nine months ended September 30, 2020, the Company recorded reimbursable expenses of $1.8 million and $5.5 million, respectively, which were recorded as a component of general, administrative and other expenses on the consolidated statements of operations. As of September 30, 2020 and December 31, 2019, amounts due from Medley Management Inc. are included in the table below.

	As of
	September 30, 2020		December 31, 2019
	(in thousands)
Amounts due from MCC	$	53	$	209
Amounts due from SIC	116		578
Amounts due from long-dated private funds	95		801
Amounts due from separately managed accounts	134		199
Amounts due from Medley Management Inc.	1,431		906
Due from Affiliates	$	1,829	$	2,693

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REDEEMABLE NON-CONTROLLING INTERESTS (Tables)

9 Months Ended

Sep. 30, 2020

Temporary Equity Disclosure [Abstract]

Schedule of Redeemable Noncontrolling Interests

Changes in redeemable non-controlling interests during the nine months ended September 30, 2020 and 2019 is reflected in the table below (in thousands).

	For the Nine Months Ended September 30,
	2020			2019
Balance at beginning of the period	$	(748	)	$	23,186
Net loss attributable to redeemable non-controlling interests in consolidated subsidiaries	(4		)	(321		)
Distributions	—			(2,362		)
Fair value adjustment to redeemable non-controlling interests	752			—
Balance at end of the period	$	—		$	20,503

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ORGANIZATION AND BASIS OF PRESENTATION (Registered Public Offering of Medley LLC Notes) (Details)					9 Months Ended
	Feb. 22, 2017 USD ($) $ / shares	Jan. 18, 2017 USD ($)	Oct. 18, 2016 USD ($) $ / shares	Aug. 09, 2016 USD ($)	Sep. 30, 2020 USD ($) segment
Debt Instrument [Line Items]
Number of Reportable Segments | segment					1
Debt Instrument Discounted Offering Price			$ 24.45
Debt Instrument Offering Price			$ 25.00
Senior Notes | Senior Notes Due 2026
Debt Instrument [Line Items]
Debt instrument, face amount | $			$ 28,600,000.0	$ 25,000,000.0	$ 53,600,000.0
Stated interest rate			6.875%	6.875%
Senior Notes | Senior Notes Due 2026 | On or After August 15, 2019
Debt Instrument [Line Items]
Redemption percentage			100.00%	100.00%	100.00%
Senior Notes | Senior Notes Due 2024
Debt Instrument [Line Items]
Debt instrument, face amount | $	$ 34,500,000.0	$ 34,500,000.0			$ 69,000,000.0
Debt Instrument Discounted Offering Price	$ 25.25
Debt Instrument Offering Price	$ 25.00
Stated interest rate	7.25%	7.25%
Senior Notes | Senior Notes Due 2024 | On or After January 30, 2020
Debt Instrument [Line Items]
Redemption percentage	100.00%	100.00%			100.00%

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ORGANIZATION AND BASIS OF PRESENTATION (Medley LLC Reorganization Narrative) (Details)		9 Months Ended
	Sep. 29, 2014 shares	Sep. 30, 2020
Common Class A
Class of Stock [Line Items]
Common stock exchange ratio		1
Medley LLC
Class of Stock [Line Items]
Conversion of pre-IPO interests to LLC Units (in shares)	2,333,333

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ORGANIZATION AND BASIS OF PRESENTATION (Reverse Split of LLC Units and Termination of Agreement and Plan of Merger Narrative) (Details) $ in Millions		3 Months Ended		9 Months Ended
	Oct. 30, 2020	Sep. 30, 2020 USD ($)	Sep. 30, 2019 USD ($)	Sep. 30, 2020 USD ($)	Sep. 30, 2019 USD ($)
Subsequent Event [Line Items]
Transaction expenses		$ 1.0	$ 2.1	$ 3.5	$ 3.5
Subsequent Event
Subsequent Event [Line Items]
Conversion ratio	0.100

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Consolidated and Non-Consolidated Variable Interest Entities Narrative) (Details) $ in Thousands	Sep. 30, 2020 USD ($) subsidiary	Dec. 31, 2019 USD ($) subsidiary
Variable Interest Entity [Line Items]
Total assets of consolidated variable interest entity	$ 36,538	$ 48,059
Total liabilities of consolidated variable interest entity, less than	169,553	166,680
Fair value of investments in non-consolidated VIEs	2,400	3,000
Receivables included as a component of other assets and clawback obligation	600	1,300
Accrued clawback obligations	7,200	7,200
Maximum loss exposure	3,000
Variable Interest Entity, Primary Beneficiary
Variable Interest Entity [Line Items]
Total assets of consolidated variable interest entity	900	1,200
Total liabilities of consolidated variable interest entity, less than	$ 100	$ 100
Medley LLC
Variable Interest Entity [Line Items]
Number of majority owned subsidiaries | subsidiary	4	7

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Seed Investments and Deconsolidation of Consolidated Fund) (Details) - USD ($) $ in Thousands					9 Months Ended
	Apr. 06, 2020	Apr. 02, 2020	Oct. 28, 2019	Jun. 06, 2017	Sep. 30, 2019	Sep. 30, 2020	Dec. 31, 2019	Jun. 30, 2017
Assets
Cash and cash equivalents						$ 5,823	$ 10,377
Investments, at fair value						9,637	13,287
Other assets						10,073	9,727
Total Assets						36,538	48,059
Liabilities and Equity
Accounts payable, accrued expenses and other liabilities						25,942	21,886
Total Liabilities, Redeemable Non-controlling Interests and Members' Deficit						$ 36,538	48,059
STRF
Schedule of Equity Method Investments [Line Items]
Amount funded								$ 2,100
Assets
Cash and cash equivalents	$ 471						682
Investments, at fair value	1,016						1,441
Other assets	76						29
Total Assets	1,563						2,152
Liabilities and Equity
Accounts payable, accrued expenses and other liabilities	39						342
Equity	1,524						1,810
Total Liabilities, Redeemable Non-controlling Interests and Members' Deficit	1,563						2,152
Other assets eliminated							200
Equity eliminated							$ 1,800
STRF | Master Investment Agreement with DB MED Investor I LLC and DB MED Investor II LLC
Schedule of Equity Method Investments [Line Items]
Amount funded				$ 2,000	$ 2,000
Medley and ''Investors'' | Master Investment Agreement with DB MED Investor I LLC and DB MED Investor II LLC
Liabilities and Equity
Contributions to the joint venture				$ 53,800	$ 53,800
Medley and ''Investors'' | Master Investment Agreement with DB MED Investor I LLC and DB MED Investor II LLC | MCC
Liabilities and Equity
Contributions to the joint venture	$ 100	$ 200	$ 100

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Narrative) (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019	Dec. 31, 2019
Accounting Policies [Abstract]
Carried interest distribution	$ 0.1		$ 0.2		$ 0.3
Accrued clawback obligations	7.2		7.2		$ 7.2
Reversal of previously recognized carried interest, less than	$ 0.1	$ 0.1	$ 0.1	$ 0.1

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REVENUES FROM CONTRACTS WITH CUSTOMERS (Summary of Revenue from Contracts with Customers Disaggregated by Type of Customer) (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Disaggregation of Revenue [Line Items]
Revenues from contracts with customers	$ 7,910	$ 12,228	$ 26,076	$ 38,459
Management fees
Disaggregation of Revenue [Line Items]
Revenues from contracts with customers	6,275	9,607	19,807	30,728
Other revenues and fees
Disaggregation of Revenue [Line Items]
Revenues from contracts with customers	1,635	2,621	6,269	7,731
Permanent Capital Vehicles
Disaggregation of Revenue [Line Items]
Revenues from contracts with customers	5,237	8,668	17,281	26,471
Permanent Capital Vehicles | Management fees
Disaggregation of Revenue [Line Items]
Revenues from contracts with customers	4,045	6,593	12,855	21,144
Permanent Capital Vehicles | Other revenues and fees
Disaggregation of Revenue [Line Items]
Revenues from contracts with customers	1,192	2,075	4,426	5,327
Long-dated Private Funds
Disaggregation of Revenue [Line Items]
Revenues from contracts with customers	1,097	1,616	3,633	5,185
Long-dated Private Funds | Management fees
Disaggregation of Revenue [Line Items]
Revenues from contracts with customers	1,097	1,616	3,633	5,185
Long-dated Private Funds | Other revenues and fees
Disaggregation of Revenue [Line Items]
Revenues from contracts with customers	0	0	0	0
SMAs
Disaggregation of Revenue [Line Items]
Revenues from contracts with customers	1,133	1,398	3,319	4,399
SMAs | Management fees
Disaggregation of Revenue [Line Items]
Revenues from contracts with customers	1,133	1,398	3,319	4,399
SMAs | Other revenues and fees
Disaggregation of Revenue [Line Items]
Revenues from contracts with customers	0	0	0	0
Other
Disaggregation of Revenue [Line Items]
Revenues from contracts with customers	443	546	1,843	2,404
Other | Management fees
Disaggregation of Revenue [Line Items]
Revenues from contracts with customers	0	0	0	0
Other | Other revenues and fees
Disaggregation of Revenue [Line Items]
Revenues from contracts with customers	$ 443	$ 546	$ 1,843	$ 2,404

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REVENUES FROM CONTRACTS WITH CUSTOMERS (Narrative) (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019	Dec. 31, 2019
Disaggregation of Revenue [Line Items]
Contract liabilities	$ 200,000		$ 200,000		$ 200,000
Deferred revenue	100,000	$ 200,000	0	$ 500,000
Cash deposits	100,000	$ 200,000	300,000	$ 300,000
Contract assets	0		0		$ 0
Affiliated Entity | Expense Support Agreement | MCC
Disaggregation of Revenue [Line Items]
ESA expenses	$ 400,000		$ 700,000

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INVESTMENTS (Composition of Investments) (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Schedule of Investments [Abstract]
Equity method investments, at fair value	$ 9,589	$ 11,650
Investment held at cost less impairment	48	196
Investments of consolidated fund	0	1,441
Total investments, at fair value	$ 9,637	$ 13,287

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INVESTMENTS (Narrative) (Details) - USD ($)	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019	Dec. 31, 2019
Schedule of Investments [Line Items]
Loss from other than temporary impairment equity investments	$ 0	$ 0	$ 0	$ 0
Equity method investments, at fair value	9,589,000		9,589,000		$ 11,650,000
Performance fees			800,000		900,000
Consolidated Subsidiaries | Reported Value Measurement
Schedule of Investments [Line Items]
Equity method investments, at fair value					200,000
Consolidated Subsidiaries | Senior Notes | Reported Value Measurement
Schedule of Investments [Line Items]
Investments of consolidated fund					1,300,000
Sierra Income Corporation
Schedule of Investments [Line Items]
Equity method investments, at fair value	5,400,000		$ 5,400,000		$ 6,400,000
CK Pearl Fund
Schedule of Investments [Line Items]
Investment held at cost impairment	$ (100,000)	$ 0		$ 0

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FAIR VALUE MEASUREMENTS (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2020	Dec. 31, 2019
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments of consolidated fund	$ 9,637	$ 13,287
Equity investments	9,589	11,650
Level III | Due to DB Med Investors
Level III Financial Liabilities as of September 30, 2020
Balance at December 31, 2019	1,750
Payments	0
Realized and Unrealized Depreciation	(209)
Balance at September 30, 2020	0
Level III | Consolidated Subsidiaries | Due to DB Med Investors
Level III Financial Liabilities as of September 30, 2020
Settlement of liability to DB Med Investors, at fair value	(1,541)
Level III | Consolidated Subsidiaries | Investments
Level III Financial Assets as of September 30, 2020
Balance at December 31, 2019	1,331
Deconsolidation of STRF	(940)
Transfers In or (Out) of Level III	0
Realized and Unrealized Depreciation	(295)
Sale of Level III Assets	(96)
Balance at September 30, 2020	$ 0
Reported Value Measurement | Consolidated Subsidiaries
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Equity investments		200
Reported Value Measurement | Senior Notes | Consolidated Subsidiaries
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total Assets		1,300
Reported Value Measurement | Level I | Consolidated Subsidiaries
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Equity investments		100
Reported Value Measurement | Level III | Senior Notes | Consolidated Subsidiaries
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total Assets		1,300
Nonrecurring
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total Assets		1,441
Due to DB Med Investors		1,750
Total Liabilities		1,750
Nonrecurring | Consolidated Subsidiaries
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments of consolidated fund		1,441
Nonrecurring | Reported Value Measurement | Level I
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total Assets		110
Due to DB Med Investors		0
Total Liabilities		0
Nonrecurring | Reported Value Measurement | Level I | Consolidated Subsidiaries
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments of consolidated fund		110
Nonrecurring | Reported Value Measurement | Level II
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total Assets		0
Due to DB Med Investors		0
Total Liabilities		0
Nonrecurring | Reported Value Measurement | Level II | Consolidated Subsidiaries
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments of consolidated fund		0
Nonrecurring | Reported Value Measurement | Level III
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total Assets		1,331
Due to DB Med Investors		1,750
Total Liabilities		1,750
Nonrecurring | Reported Value Measurement | Level III | Consolidated Subsidiaries
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments of consolidated fund		$ 1,331

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LEASES (Summary of Components of Lease Cost and Other Information) (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Leases [Abstract]
Operating lease costs	$ 634	$ 637	$ 1,914	$ 1,895
Variable lease costs	0	0	0	0
Sublease income	(110)	(113)	(329)	(342)
Total lease cost	$ 524	$ 524	$ 1,585	$ 1,553

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LEASES (Summary of Supplemental Balance Sheet Information Related to Leases) (Details)	Sep. 30, 2020	Dec. 31, 2019
Leases [Abstract]
Weighted-average remaining lease term (in years)	2 years 9 months 18 days	3 years 6 months
Weighted-average discount rate	8.20%	8.20%

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LEASES (Narrative) (Details) $ in Millions	Jun. 29, 2020 USD ($) installment
Leases [Abstract]
Deferred rent payments | $	$ 0.8
Number of installments | installment	9

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LEASES (Summary of Future Payments for Operating Leases) (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Leases [Abstract]
Remaining in 2020 (July 1st through December 31st)	$ 728
2021	3,288
2022	2,441
2023	1,823
Total future lease payments	8,280
Less imputed interest	(860)
Operating lease liabilities, at September 30, 2020	$ 7,420	$ 8,267

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OTHER ASSETS (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]
Fixed assets, net of accumulated depreciation and amortization of $4,386 and $3,847, respectively	$ 2,041	$ 2,564
Security deposits	1,975	1,975
Administrative fees receivable (Note 13)	1,252	1,073
Due from affiliates (Note 13)	1,829	2,693
Prepaid expenses and income taxes	2,674	746
Other assets	302	676
Total other assets	10,073	9,727
Accumulated depreciation	$ 4,386	$ 3,847

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SENIOR UNSECURED DEBT (Schedule of Senior Unsecured Debt) (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019	Feb. 22, 2017	Oct. 18, 2016
Debt Instrument [Line Items]
Senior unsecured debt	$ 118,958	$ 118,382
Senior Notes
Debt Instrument [Line Items]
Senior unsecured debt	118,958	118,382
Senior Notes | Senior Notes Due 2026
Debt Instrument [Line Items]
Senior unsecured debt	51,287	51,011
Debt instrument, unamortized discount (premium) and debt issuance costs	2,308	2,584		$ 3,800
Senior Notes | Senior Notes Due 2024
Debt Instrument [Line Items]
Senior unsecured debt	67,671	67,371
Debt instrument, unamortized discount (premium) and debt issuance costs	$ 1,329	$ 1,629	$ (2,800)

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SENIOR UNSECURED DEBT (Narrative) (Details) - Senior Notes - USD ($)					3 Months Ended		9 Months Ended
	Feb. 22, 2017	Jan. 18, 2017	Oct. 18, 2016	Aug. 09, 2016	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019	Dec. 31, 2019
Senior Notes Due 2026
Debt Instrument [Line Items]
Debt instrument, face amount			$ 28,600,000.0	$ 25,000,000.0	$ 53,600,000.0		$ 53,600,000.0
Stated interest rate			6.875%	6.875%
Discount (premium) and direct issuance costs			$ 3,800,000		2,308,000		2,308,000		$ 2,584,000
Notes payable, fair value disclosure					14,600,000		14,600,000
Interest expense, including amortization of discount and debt issuance costs					1,000,000	$ 1,000,000	$ 3,000,000	$ 3,000,000
Senior Notes Due 2026 | On or After August 15, 2019
Debt Instrument [Line Items]
Redemption percentage			100.00%	100.00%			100.00%
Senior Notes Due 2024
Debt Instrument [Line Items]
Debt instrument, face amount	$ 34,500,000.0	$ 34,500,000.0			69,000,000.0		$ 69,000,000.0
Stated interest rate	7.25%	7.25%
Discount (premium) and direct issuance costs	$ (2,800,000)				1,329,000		1,329,000		$ 1,629,000
Notes payable, fair value disclosure					20,500,000		20,500,000
Interest expense, including amortization of discount and debt issuance costs					$ 1,400,000	$ 1,400,000	$ 4,100,000	$ 4,100,000
Senior Notes Due 2024 | On or After January 30, 2020
Debt Instrument [Line Items]
Redemption percentage	100.00%	100.00%					100.00%

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LOANS PAYABLE (Schedule of Loans Payable) (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Debt Instrument [Line Items]
Loans payable	$ 10,000	$ 10,000
Non-recourse promissory notes
Debt Instrument [Line Items]
Loans payable	$ 10,000	$ 10,000

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LOANS PAYABLE (Narrative) (Details)	1 Months Ended	3 Months Ended	9 Months Ended
	Apr. 30, 2012 USD ($) note shares	Sep. 30, 2019 USD ($)	Sep. 30, 2020 USD ($)	Sep. 30, 2019 USD ($)	Dec. 31, 2019 USD ($)	Jan. 31, 2019 note
Debt Instrument [Line Items]
Future principal payments due on December 30, 2020			$ 10,000,000
Amortization of debt issuance costs, less than			519,000	$ 580,000
Non-recourse promissory notes
Debt Instrument [Line Items]
Debt instrument, face amount	$ 10,000,000.0
Number of notes | note	2					2
Number of shares of common stock purchased (in shares) | shares	1,108,033
Unamortized debt issuance expense	$ 3,800,000
Interest expense		$ 200,000	$ 200,000	$ 700,000
Debt instrument interest rate increase			1.00%	1.00%
Notes payable, fair value disclosure			$ 10,000,000		$ 10,000,000

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DUE TO FORMER MINORITY INTEREST HOLDER (Details)	3 Months Ended		9 Months Ended
	Sep. 30, 2020 USD ($)	Sep. 30, 2019 USD ($)	Sep. 30, 2020 USD ($)	Sep. 30, 2019 USD ($)	Feb. 05, 2023 USD ($)	Aug. 06, 2020 USD ($)	Aug. 05, 2020 USD ($) installment	Dec. 31, 2019 USD ($)	Dec. 31, 2018 USD ($) installment
Debt Instrument [Line Items]
Due to former minority interest holder	$ 7,233,000		$ 7,233,000					$ 8,145,000
Future payments:
Total future payments	10,000,000		10,000,000					10,000,000
Due to Former Minority Interest Holder
Debt Instrument [Line Items]
Due to former minority interest holder	7,233,000		7,233,000			$ 350,000	$ 700,000	8,145,000
Debt consideration									$ 14,000,000.0
Unamortized discount	817,000		817,000					$ 1,480,000
Number of installments | installment							3		16
Future payments:
Remaining in 2020 (April 1st through December 31st)	350,000		350,000
2021	2,700,000		2,700,000
2022	4,000,000		4,000,000
2023	1,000,000		1,000,000
Total future payments	8,050,000		8,050,000
Debt discount	$ 200,000	$ 300,000	$ 700,000	$ 800,000
Due to Former Minority Interest Holder | Subsequent Event | Forecast
Debt Instrument [Line Items]
Due to former minority interest holder					$ 1,000,000

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ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER LIABILITIES (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Payables and Accruals [Abstract]
Accrued compensation and benefits	$ 3,496	$ 6,161
Due to affiliate (Note 13)	7,224	7,212
Revenue share payable (Note 12)	7,292	2,316
Accrued interest	1,294	1,294
Professional fees	4,169	1,481
Due to DB Med Investors, at fair value	0	1,750
Accounts payable and other accrued expenses	2,467	1,672
Total accounts payable, accrued expenses and other liabilities	$ 25,942	$ 21,886

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ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER LIABILITIES (Narrative) (Details) - USD ($)					9 Months Ended	12 Months Ended
	Apr. 06, 2020	Apr. 02, 2020	Oct. 28, 2019	Jun. 06, 2017	Sep. 30, 2019	Dec. 31, 2019	Oct. 22, 2019	Jun. 03, 2016
Investors
Redeemable Noncontrolling Interest [Line Items]
Fair value of non-controlling interest							$ 18,100,000
Change in fair value		$ 1,500,000				$ 1,800,000
Master Investment Agreement with DB MED Investor I LLC and DB MED Investor II LLC
Redeemable Noncontrolling Interest [Line Items]
Investments and contributions				$ 13,800,000.0				$ 10,000,000
Master Investment Agreement with DB MED Investor I LLC and DB MED Investor II LLC | Investors
Redeemable Noncontrolling Interest [Line Items]
Investments and contributions				40,000,000
Master Investment Agreement with DB MED Investor I LLC and DB MED Investor II LLC | Medley and ''Investors''
Redeemable Noncontrolling Interest [Line Items]
Investments and contributions								$ 50,000,000
Contributions to the joint venture, less than				$ 53,800,000	$ 53,800,000
Master Investment Agreement with DB MED Investor I LLC and DB MED Investor II LLC | STRF
Redeemable Noncontrolling Interest [Line Items]
Number of shares distributed (in shares)		82,121
MCC | Master Investment Agreement with DB MED Investor I LLC and DB MED Investor II LLC | Medley and ''Investors''
Redeemable Noncontrolling Interest [Line Items]
Investments and contributions			$ 16,500,000
Contributions to the joint venture, less than	$ 100,000	$ 200,000	$ 100,000

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COMMITMENTS AND CONTINGENCIES (Capital Commitments to Funds) (Details) - USD ($) $ in Millions	Sep. 30, 2020	Dec. 31, 2019
Consolidated Funds
Loss Contingencies [Line Items]
Unfunded capital commitments	$ 0.3	$ 0.3

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COMMITMENTS AND CONTINGENCIES (Other Commitments) (Details)		1 Months Ended
	Jan. 31, 2019 USD ($) note	Apr. 30, 2012 USD ($) note	Sep. 30, 2020 USD ($)	Dec. 31, 2019 USD ($)
Non-recourse promissory notes
Loss Contingencies [Line Items]
Proceeds from issuance of debt		$ 10,000,000
Present value of future cash flows expected to be paid		4,400,000
Contractual obligation			$ 7,300,000	$ 2,300,000
Debt instrument, face amount		$ 10,000,000.0
Number of notes | note	2	2
New Promissory Note
Loss Contingencies [Line Items]
Repayments of debt	$ 6,500,000
Debt maturity term	6 months
Debt instrument, face amount	$ 6,500,000.0
New Promissory Note | London Interbank Offered Rate (LIBOR)
Loss Contingencies [Line Items]
Spread on interest rate	7.00%

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COMMITMENTS AND CONTINGENCIES (Legal Proceedings) (Details)				1 Months Ended
	Oct. 16, 2020 USD ($)	May 11, 2020 USD ($) defendant	May 29, 2015 USD ($)	Feb. 28, 2015
American Web Loan
Loss Contingencies [Line Items]
Repayment of loan				1 year 10 months
MCC Advisors LLC | Moshe Barkat and MVF Holdings
Loss Contingencies [Line Items]
Debt default			$ 65,000,000
Damages sought			100,000,000
Settlement amount			$ 1,500,000
Sierra | MCC Advisors LLC
Loss Contingencies [Line Items]
Damages sought		$ 50,000
Number of defendants | defendant		2
Subsequent Event | MCC Advisors LLC | Derivative Action
Loss Contingencies [Line Items]
Settlement amount	$ 5,000,000

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RELATED PARTY TRANSACTIONS (Details) $ in Thousands		3 Months Ended		9 Months Ended
	Jun. 12, 2020 USD ($)	Sep. 30, 2020 USD ($)	Sep. 30, 2019 USD ($)	Sep. 30, 2020 USD ($)	Sep. 30, 2019 USD ($)	Dec. 31, 2019 USD ($)
Related Party Transaction [Line Items]
Administrative fees from related parties		$ 7,910	$ 12,228	$ 26,076	$ 38,459
Administrative fees receivable		1,252		1,252		$ 1,073
Due from Affiliates		1,829		1,829		2,693
Reimbursable Expenses		1,800		$ 5,500
Common Class A
Related Party Transaction [Line Items]
Common stock exchange ratio				1
Affiliated Entity
Related Party Transaction [Line Items]
Administrative fees from related parties		1,192	2,075	$ 4,426	5,327
Affiliated Entity | MCC Advisors LLC
Related Party Transaction [Line Items]
Due from Affiliates		53		53		209
Affiliated Entity | SIC
Related Party Transaction [Line Items]
Due from Affiliates		116		116		578
Amounts due from Medley Management Inc.
Related Party Transaction [Line Items]
Due from Affiliates		1,431		1,431		906
MCC Admin Agreement
Related Party Transaction [Line Items]
Administrative fees receivable		518		518		444
MCC Admin Agreement | Affiliated Entity
Related Party Transaction [Line Items]
Administrative fees from related parties		465	822	1,747	2,437
SIC Admin Agreement
Related Party Transaction [Line Items]
Administrative fees receivable		439		439		382
SIC Admin Agreement | Affiliated Entity
Related Party Transaction [Line Items]
Administrative fees from related parties		432	980	1,803	2,158
Fund Admin Agreements
Related Party Transaction [Line Items]
Administrative fees receivable		295		295		247
Fund Admin Agreements | Affiliated Entity
Related Party Transaction [Line Items]
Administrative fees from related parties		295	$ 273	876	$ 732
Long-dated Private Funds
Related Party Transaction [Line Items]
Due from Affiliates		95		95		801
Separately Managed Accounts
Related Party Transaction [Line Items]
Due from Affiliates		134		134		$ 199
Expense Support Agreement | Affiliated Entity | MCC Advisors LLC
Related Party Transaction [Line Items]
Maximum expenses per month	$ 667
ESA expenses		$ 400		$ 700

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INCOME TAXES (Narrative) (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019	Dec. 31, 2019
Income Tax Disclosure [Abstract]
Deferred tax assets	$ 3,200,000		$ 3,200,000		$ 3,700,000
Effective tax rate	2.50%	1.50%	2.20%	1.40%
Benefit from CARES Act			$ 1,400,000
Uncertain tax positions	$ 0	$ 0	$ 0	$ 0

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COMPENSATION EXPENSE (Retirement Plan Narrative) (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019	Dec. 31, 2019
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Percentage vested from participants eligibility date			100.00%
Contributions as a percent of employee eligible wages			3.00%
Accrued contributions	$ 100,000.0	$ 100,000	$ 300,000.0	$ 400,000
Retirement plan liability	300,000		300,000		$ 400,000
Chief Executive Officer
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Maximum aggregate compensation	800,000	$ 1,300,000	2,300,000	$ 3,800,000
Compensation guaranteed	$ 200,000		$ 800,000

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COMPENSATION EXPENSE (Stock-Based Compensation Narrative) (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation	$ 1,100	$ 2,000	$ 2,946	$ 5,227
Restricted Stock Units (RSUs)
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
RSU vesting period			5 years

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REDEEMABLE NON-CONTROLLING INTERESTS (Schedule of Redeemable Non-controlling Interest) (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Increase (Decrease) in Temporary Equity
Beginning balance	$ (748)
Fair value adjustment to redeemable non-controlling interests	(752)
Ending balance	0
Redeemable Non-controlling Interests
Increase (Decrease) in Temporary Equity
Beginning balance	(748)	$ 23,186
Net loss attributable to redeemable non-controlling interests in consolidated subsidiaries	(4)	(321)
Distributions	0	(2,362)
Fair value adjustment to redeemable non-controlling interests	752	0
Ending balance	$ 0	$ 20,503

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REDEEMABLE NON-CONTROLLING INTERESTS (Narrative) (Details) - USD ($)					1 Months Ended	3 Months Ended		9 Months Ended
	Apr. 06, 2020	Apr. 02, 2020	Oct. 28, 2019	Jun. 06, 2017	Oct. 31, 2019	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019	Dec. 31, 2019	Oct. 22, 2019	Dec. 31, 2018	Jun. 30, 2017	Jun. 03, 2016
Redeemable Noncontrolling Interest [Line Items]
Fair value adjustment								$ (752,000)
Balance of redeemable non-controlling interest						$ 0		0		$ (748,000)
Distributions to members and redeemable non-controlling interests								551,000	$ 3,554,000
Master Investment Agreement with DB MED Investor I LLC and DB MED Investor II LLC
Redeemable Noncontrolling Interest [Line Items]
Investments and contributions				$ 13,800,000.0										$ 10,000,000
Distributions to members and redeemable non-controlling interests							$ 800,000		2,400,000
Master Investment Agreement with DB MED Investor I LLC and DB MED Investor II LLC | Minimum
Redeemable Noncontrolling Interest [Line Items]
Investment period				7 years
Master Investment Agreement with DB MED Investor I LLC and DB MED Investor II LLC | Maximum
Redeemable Noncontrolling Interest [Line Items]
Investment period				10 years
STRF
Redeemable Noncontrolling Interest [Line Items]
Seed investment													$ 2,100,000
STRF | Master Investment Agreement with DB MED Investor I LLC and DB MED Investor II LLC
Redeemable Noncontrolling Interest [Line Items]
Seed investment				$ 2,000,000			2,000,000		2,000,000
Medley and ''Investors'' | Master Investment Agreement with DB MED Investor I LLC and DB MED Investor II LLC
Redeemable Noncontrolling Interest [Line Items]
Investments and contributions														$ 50,000,000
Contributions to the joint venture				53,800,000					53,800,000
Medley and ''Investors'' | Master Investment Agreement with DB MED Investor I LLC and DB MED Investor II LLC | MCC Advisors LLC
Redeemable Noncontrolling Interest [Line Items]
Investments and contributions			$ 16,500,000
Contributions to the joint venture	$ 100,000	$ 200,000	$ 100,000
Purchases of available for sale securities				$ 51,800,000					51,800,000
Investors
Redeemable Noncontrolling Interest [Line Items]
Fair value of non-controlling interest											$ 18,100,000
Percent of preferred distributions given to Investors				8.00%	8.00%
Investors | Master Investment Agreement with DB MED Investor I LLC and DB MED Investor II LLC
Redeemable Noncontrolling Interest [Line Items]
Investments and contributions				$ 40,000,000
Percent of Joint Venture profits given to Investors				15.00%
Period before Investors can redeem their interests				10 years
Redeemable Non-controlling Interests
Redeemable Noncontrolling Interest [Line Items]
Fair value adjustment								752,000	0
Balance of redeemable non-controlling interest						0	20,503,000	0	20,503,000	$ (748,000)		$ 23,186,000
Redeemable Non-controlling Interests | STRF
Redeemable Noncontrolling Interest [Line Items]
Fair value of non-controlling interest						0		0
Net income (losses) allocated to non-controlling interest, less than						0	100,000	100,000	100,000
Balance of redeemable non-controlling interest						$ 0		0
Accumulated Deficit
Redeemable Noncontrolling Interest [Line Items]
Fair value adjustment								(752,000)
Accumulated Deficit | STRF
Redeemable Noncontrolling Interest [Line Items]
Fair value adjustment								$ 100,000
Non-controlling Interests | Master Investment Agreement with DB MED Investor I LLC and DB MED Investor II LLC
Redeemable Noncontrolling Interest [Line Items]
Net income (losses) allocated to non-controlling interest, less than							$ 1,700,000		$ 300,000