One of the nastier consequences of the financial crisis of 2008 was an almost instant contraction of credit. While consumer credit contracted as expected, commercial lending evaporated as well. American businesses, primarily small and mid-market businesses, were cut off from access to capital, preventing them from expanding and in some cases even staying afloat.
But at the same time, something magical also happened. While banks refused to lend the cash the Federal Reserve had pumped into the system to keep them afloat, business development companies (BDCs) and other private equity entities stepped up to fill that space. So, in addition to providing liquidity to cash-starved businesses, they also made lots of money and created billions of dollars in value.
One company that's been stepping up quite successfully has been Medallion Financial (Nasdaq: TAXI). The company has actually been successful for quite a while, mainly due to its wholly unique niche: taxicab operators in New York City. To operate in New York, a cab company must purchase a taxicab medallion, which is basically its license required to operate. Medallion's mission statement says it all: "In niches, there are riches."
The company traces its roots back to 1937 when an immigrant named Leon Murstein came to America and supported his family by driving a taxi. Leon, like most enterprising new Americans, preferred to be "the Man," rather than work for "the Man" and bought his first medallion for 10 bucks. The business grew. The single medallion eventually became 500 and a garage for all of his taxis. Today, his son Alvin and grandson, Andrew, still run the business.
Inflation has caught up to everything, including NYC taxicab medallions, which now cost in excess of $225,000. This is where Medallion comes in to provide financing. As far as the New York taxi market is concerned, medallions are an easily collateralized, valuable asset. Medallion provides this and does this well, controlling 25% of the medallion financing market, which has a reported value of more than $3 billion. Taxi medallion lending represents 80% of the company's lending business.