Medallion Financial (TAXI)

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Neena Mishra

www.zacks.com

Medallion Financial Corp. (TAXI) is a non-diversified management investment company (a closed-end fund), regulated as a Business Development Company (BDC) under the Investment Company Act of 1940 and treated as a Regulated Investment Company (RIC) for income tax purposes. The Company conducts its business through various wholly owned subsidiaries including its primary operating company, Medallion Funding Corp. (MFC), a small business investment company that originates and services taxicab medallion and commercial loans. In December 2003, the company opened Medallion Bank and capitalized it with $22 million of equity. In the fourth quarter of 2006, TAXI voluntarily deconsolidated Medallion Bank as a separate portfolio company, and now accounts for Medallion Bank as an equity investment. This has significantly changed the face of TAXI's income statement and balance sheet. Medallion Bank, a Nevada-based industrial loan corporation with its deposits guaranteed by the FDIC, sells brokered certificates of deposits (CDs) used to fund medallion and other loan portfolios and also originates commercial and consumer loans for the purchase of recreational vehicles, boats, and horse trailers.

TAXI, a specialty finance company that has a leading position in originating, acquiring, and servicing loans that finance taxicab medallions, strategically identifies profitable market niches where it can be an industry leader. This involves both internal growth and acquisitions. Since its initial public offering in May 1996, TAXI has purchased approximately eight specialty finance companies, five loan portfolios, and three taxicab-rooftop advertising companies. Two businesses have been sold in the last couple of years. In September 2004, the taxicab advertising division was merged with the advertising arm of Clear Channel Communications (CCU), for which TAXI received CCU shares and cash. In March 2005, TAXI announced the sale of its SBA Business Lenders division, which closed in mid-October.

To maintain its RIC status, TAXI must distribute the vast majority (about 90%) of its investment company income, meaning that the firm must rely significantly on outside funding for growth, rather than internal capital generation. We note, however, that Medallion Bank, as a taxable entity, is able to retain capital, providing an additional source of internal funding. Also as an RIC, its investment in certain non-RIC businesses is limited, which may limit the growth of some subsidiaries over time (including Medallion Bank).

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