10-K
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d897922d10k.htm
10-K
10-K
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
For the fiscal year ended December 31, 2024
OR
FOR THE TRANSITION PERIOD FROM TO
Commission File Number: 333-283675
MARBLEGATE
CAPITAL CORPORATION
(Exact name of Registrant as specified in its Charter)
5 Greenwich Office Park, Suite 400 Greenwich, CT 06831
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: 203 (210) 6500
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check
mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ☐ NO ☒
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. YES ☐ NO ☒
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 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of
its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the
registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by
check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒
The
registrant was not a public company as of the last business day of its most recently completed second fiscal quarter and, therefore, cannot calculate the aggregate market value of its voting and non-voting
common equity held by non-affiliates as of such date.
As of April 7, 2025, there were
11,282,212 shares of common stock, par value $0.0001 per share, of the registrant issued and outstanding.
DOCUMENTS INCORPORATED BY
REFERENCE
None.
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TABLE OF CONTENTS
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS i
SUMMARY RISK FACTORS v
ITEM 1. BUSINESS. 1
ITEM 1A. RISK FACTORS. 21
ITEM 1B. UNRESOLVED STAFF COMMENTS 52
ITEM 1C. CYBERSECURITY. 52
ITEM 2. PROPERTIES. 53
ITEM 3. LEGAL PROCEEDINGS. 53
ITEM 4. MINE SAFETY DISCLOSURES. 53
ITEM 6. [RESERVED] 54
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. 78
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. 78
ITEM 9A. CONTROLS AND PROCEDURES. 78
ITEM 9B. OTHER INFORMATION. 79
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS. 79
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 80
ITEM 11. EXECUTIVE COMPENSATION. 87
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES. 96
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES 97
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EXPLANATORY NOTE
On April 7, 2025 (the “Closing Date”), subsequent to the fiscal year ended December 31, 2024, the fiscal year to
which this Annual Report on Form 10-K relates, Marblegate Acquisition Corp., a Delaware corporation (“MAC”), Marblegate Asset Management, LLC, a Delaware limited liability company
(“MAM”), Marblegate Capital Corporation, a Delaware corporation (“New MAC”), MAC Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of New MAC (“Merger Sub”), DePalma Acquisition
I LLC, a Delaware limited liability company (“DePalma I”), and DePalma Acquisition II LLC, a Delaware limited liability company (“DePalma II,” and each of DePalma I and DePalma II, a “DePalma
Company” and together, the “DePalma Companies” or “DePalma”), consummated the previously announced business combination (the “Business Combination”) pursuant to the terms of the Business
Combination Agreement, dated February 14, 2023, by and among the foregoing parties (the “Business Combination Agreement”). In connection with the Closing of the Business Combination, among other things, (i) New MAC and the
DePalma Companies effected a series of reorganization transactions, resulting in New MAC becoming the majority owner of the DePalma Companies, and (ii) Merger Sub merged with and into MAC (the “Merger”), with MAC surviving the
Merger as a wholly-owned subsidiary of New MAC. New MAC intends for its shares of common stock, par value $0.0001 per share, and warrants, each representing the right to purchase a share of common stock of New MAC, to be quoted on the OTCQX® Best Market (the “OTC Markets”) under the symbols “GATE” and “GATEW”, respectively.
Unless context otherwise requires, references to the “Company,” “New MAC,” “our,” “us” or
“we” in this Annual Report on Form 10-K refer to Marblegate Capital Corporation.
Further information regarding the Business Combination is set forth in the definitive proxy statement/prospectus included in the Registration
Statement of the Company and DePalma Companies on Form S-4 (File No. 333-283675) filed with the U.S. Securities and Exchange Commission (the “SEC”)
on February 7, 2025.
Except as otherwise expressly provided herein, the information in this Annual Report on Form 10-K does not reflect the consummation of the Business Combination, which, as discussed above, occurred subsequent to the period covered hereunder.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements. All statements other than
statements of historical facts contained in this Annual Report on Form 10-K, including statements regarding the financial position, business strategy and the plans and objectives of management for our future
operations, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future
results, performance or achievements expressed or implied by the forward-looking statements.
In some cases, you can identify
forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,”
“contemplate,” “believe,” “estimate,” “predict,” “potential,” “would” or “continue” or the negative of these terms or other similar expressions, although not all forward-looking
statements contain these words. The forward-looking statements in this Annual Report on Form 10-K are only predictions and are based largely on our current expectations and projections about future events and
financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Annual Report on Form 10-K and are
subject to a number of known and unknown risks, uncertainties and assumptions, including those described under the sections in this Annual Report on Form 10-K entitled “Risk Factors” and
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Annual Report on Form 10-K. These forward-looking statements are subject to
numerous risks, including, without limitation, the following:
• our ability to realize the benefits expected from the Business Combination;
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• the limited liquidity and trading of our securities;
• our failure to attract new borrowers or retain existing borrowers;
• fluctuations in costs and economic activity, especially in New York City;
• our failure to successfully compete;
• our failure to protect against software or hardware vulnerabilities;
• our failure to raise additional capital to develop our business;
• the loss of one or more of our executive officers and other key employees;
• our failure to hire and retain qualified employees;
• our failure to comply with federal, state and local laws and regulations;
• the costs related to being a public company;
Because forward-looking statements are inherently
subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances
reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Moreover, we operate in an evolving environment. New risk factors and
uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements
contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.
You should read this
Annual Report on Form 10-K completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these
cautionary statements.
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SELECTED DEFINITIONS
Unless otherwise stated in this Annual Report on Form 10-K or the context otherwise requires,
references to the following capitalized terms have the meanings set forth below:
“Anchor Founder Shares” means an
aggregate of 2,473,864 Founder Shares purchased by the Anchor Investors from the Sponsor at their original purchase price of approximately $0.002 per share.
“Anchor Investors” means the qualified institutional buyers or institutional accredited investors which are not affiliated
with MAC, the Sponsor, MAC’s directors or any member of MAC’s management and that purchased Anchor Founder Shares and certain units in the IPO.
“Business Combination” means the transactions contemplated by the Business Combination Agreement.
“Business Combination Agreement” means the Business Combination Agreement, dated as of February 14, 2023, by and
among MAC, MAM, New MAC, Merger Sub, DePalma I and DePalma II.
“Cantor” means Cantor Fitzgerald & Co.
“Closing” means the consummation of the Business Combination.
“Closing Date” means the date on which the Closing occurs.
“DePalma” or the “DePalma Companies” means DePalma Acquisition I LLC, a Delaware limited liability company,
and DePalma Acquisition II LLC, a Delaware limited liability company.
“DePalma Equityholders” means Marblegate Special
Opportunities Master Fund, L.P., as the Master Fund, DePalma Dispatch Inc., a blocker entity 100% owned by the Master Fund, Marblegate Partners Master Fund I L.P., Marblegate Partners Master Fund II L.P., Marblegate Strategic Opportunities Master
Fund I L.P., Marblegate Tactical Master Fund I L.P., Marblegate Tactical Master Fund II L.P., Marblegate Tactical III Master Fund I L.P., Marblegate Tactical III Master Fund II L.P., and Marblegate Cobblestone Master Fund I L.P. (and their
respective feeder funds and affiliates).
“DGCL” means the Delaware General Corporation Law.
“Effective Time” means the time at which the Merger becomes effective.
“Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended.
“Field Point” means Field Point Servicing, LLC.
“Investment Company Act” means the Investment Company Act of 1940, as amended.
“IPO” or “initial public offering” means MAC’s initial public offering of units, which was consummated on
October 5, 2021.
“MAC” means Marblegate Acquisition Corp., a Delaware corporation, prior to the consummation of the
Business Combination, unless the context provides otherwise.
“MAC Class A Common Stock” means
MAC’s Class A Common Stock, par value $0.0001 per share.
“MAC Class B Common Stock” means
shares of MAC Class B Common Stock, par value $0.0001 per share, which were automatically converted into shares of MAC Class A Common Stock at the time of the Business Combination.
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“MAC Common Stock” means, collectively, the MAC Class A Common Stock
and the MAC Class B Common Stock.
“MAM” or “Manager” means Marblegate Asset Management, LLC.
“Master Fund” means Marblegate Special Opportunities Master Fund, L.P., the majority owner of the Sponsor.
“Merger” means the merger of Merger Sub with and into MAC with MAC being the surviving corporation and becoming a
wholly-owned subsidiary of New MAC.
“Merger Sub” means MAC Merger Sub, Inc., a Delaware corporation, and wholly-owned
subsidiary of New MAC.
“Nasdaq” or “The Nasdaq Capital Market” means The Nasdaq Capital Market LLC.
“New MAC” means Marblegate Capital Corporation, a Delaware corporation.
“Owned Medallions” means, collectively, all Registered Medallions and Unregistered Medallions.
“Private Placement” means the private placement of 910,000 Private Placement Units purchased by the Sponsor and Cantor, which
occurred simultaneously with the completion of the IPO, at a purchase price of $10.00 per Private Placement Unit for an aggregate purchase price of $9,100,000.
“Private Placement Shares” means the shares of MAC Class A Common Stock included as part of the Private Placement Units
sold in the Private Placement concurrent with the IPO.
“Private Placement Units” means the units of MAC, each comprised
of one Private Placement Share and one half of one Private Placement Warrant, purchased by the Sponsor and Cantor in the Private Placement.
“Private Placement Warrants” means the warrants to purchase MAC Class A Common Stock included as part of the Private
Placement Units sold in the Private Placement concurrent with the IPO.
“Registered Medallions” means, collectively, NYC
taxi medallions that have completed the formal TLC transfer process and are owned by mini-LLCs that are wholly owned by DePalma II.
“SEC” means the U.S. Securities and Exchange Commission.
“Securities Act” means the U.S. Securities Act of 1933, as amended.
“Sponsor” means Marblegate Acquisition LLC, a Delaware limited liability company.
“TLC” means the New York City Taxi and Limousine Commission.
“UCC” means the Uniform Commercial Code.
“Unregistered Medallions” means, collectively, NYC taxi medallions that have not yet completed the formal TLC transfer
process, including medallions that DePalma II has acquired pursuant to a UCC disposition, and are directly owned by DePalma II.
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SUMMARY RISK FACTORS
Our business is subject to numerous risks and uncertainties, including those described in Part I, Item 1A. “Risk Factors” in
this Annual Report on Form 10-K. You should carefully consider these risks and uncertainties when investing in our securities. The principal risks and uncertainties affecting our business include the
following:
• We have a limited operational history.
• Competition with other lenders could adversely affect us.
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PART I
ITEM 1. BUSINESS.
Background
We are a Delaware corporation,
formed by MAC on February 2, 2023 (inception). We were formed to be the surviving company in connection with the Business Combination among MAC, MAM, DePalma I, and DePalma II. We have no prior operating activities.
MAC was formed on December 10, 2020 as a blank check company formed under the laws of the State of Delaware for the purpose of
effectuating a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or other similar business combination with one or more businesses. MAC completed an initial public offering (the “IPO”) on
October 5, 2021, following which the management of MAC commenced an active search for businesses or assets to acquire for the purpose of consummating an initial business combination with a high-quality business that had recently undergone a
restructuring.
The DePalma Companies were organized as two Delaware limited liability companies on February 23, 2018 and commenced
operations on March 29, 2018. The DePalma Companies are the market leader in providing specialized financing solutions to the regulated mobility sector, with a geographic focus on the New York City (“NYC”) taxi market.
On February 14, 2023, we entered into the Business Combination Agreement with MAC, MAM, Merger Sub, and the DePalma Companies, pursuant
to which, among other things, MAC was combined with the DePalma Companies in a series of transactions that is expected to result in New MAC’s Common Stock and warrants being quoted on the OTC Markets.
Pursuant to the Business Combination Agreement, and subject to the terms and conditions contained therein, among other things:
(i) We and the DePalma Companies effected a series of reorganization transactions immediately prior to the consummation of the transactions
contemplated by the Business Combination Agreement, resulting in the DePalma Companies becoming wholly-owned subsidiaries of New MAC;
(ii) Merger Sub merged with and into MAC, with MAC surviving as a wholly-owned subsidiary of New MAC, in accordance with the terms and subject
to the conditions of the Business Combination Agreement; and
(iii) Upon the effectiveness of the Merger (the “Effective
Time”), (x) each share of Class A common stock of MAC issued and outstanding immediately prior to the Effective Time was cancelled and converted into the right to receive the per share consideration allocable to each share of our
common stock (the “Company Per Share Consideration”); (y) each share of Class B common stock of MAC issued and outstanding immediately prior to the Effective Time was cancelled and converted into the right to receive the
Company Per Share Consideration, and (z) each warrant of MAC outstanding immediately prior to the Effective Time was cancelled and converted into the right to receive one warrant of New MAC, with New MAC assuming MAC’s obligations under
the existing warrant agreement.
The Business Combination closed on April 7, 2025 following the receipt of the requisite stockholder
approval on March 25, 2025 and the fulfilment of other customary closing conditions.
Following the Business Combination,
substantially all of our assets and operations are held and conducted by the DePalma Companies and their subsidiaries, and our only material assets are direct limited liability company interests in the DePalma Companies. Unless the context otherwise
requires, the “Company,” “New MAC,” “our,” “us” or “we” refer to Marblegate Capital Corporation.
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Except as otherwise expressly provided herein, the information in this Annual Report on
Form 10-K does not reflect the consummation of the Business Combination, which occurred subsequent to the periods covered by this Annual Report.
Overview
We are primarily engaged in the
business of acquiring, restructuring, and owning NYC taxi medallion collateralized loans, which we refer to as “medallion loans,” as well as leasing NYC taxi medallions through our taxicab fleet. We expect to continue to sell medallions
(potentially including seller financing). We believe we are the largest NYC taxi medallion lender with a medallion loan portfolio collateralized by approximately 1,760 NYC taxi medallions as of December 31, 2024. In addition to our business of
owning medallion loans and leasing medallions, we believe we are also the largest owner of Registered and Unregistered NYC taxi medallions. As of December 31, 2024, we had approximately 2,061 Owned Medallions, which will generally be redeployed
over time into the NYC taxi medallion lending market or leased by a fleet.
As of December 31, 2024, we leased 231 medallions through
a fleet managed by Septuagint Solutions, LLC (“Septuagint”), an operating joint venture with Kirie Eleison Corp (“Kirie Eleison”), an unaffiliated strategic partner in which we hold a 50% interest and will have
the right to exercise governance control once 85% of DePalma II’s Owned Medallions have been leased to Septuagint. The fleet operations provide an additional avenue to lease our Owned Medallions, and in the future we believe will provide us
with an avenue to finance sales to NYC taxi operators and other potential medallion purchasers. DePalma II, through its wholly-owned mini-LLC subsidiaries, entered into Medallion Owner Lease Agreements with
Septuagint (collectively, the “Lease Agreement”), whereby DePalma II grants Septuagint the exclusive right to operate or sublease medallions and related taxicab vehicles owned by the mini-LLCs in the amount of monthly rental
payments of $1,500 per medallion. Septuagint is separately obligated to pay for the vehicles under various guaranty agreements, pursuant to which it guaranteed the promissory notes executed by the mini-LLCs, as borrower, in favor of DePalma II, as
lender, in connection with the purchase of the vehicles by the mini-LLCs funded by DePalma II, which accrues interest at 6% per annum. Under the Lease Agreement, Septuagint was granted full and exclusive authority to sell (or lease) the vehicles on
behalf of the mini-LLCs at such price as Septuagint shall determine in its sole discretion. As of October 17, 2024, Septuagint no longer has exclusive authority to sell or lease vehicles on behalf of the mini-LLCs. The mini-LLCs retain
ownership interest in the medallions and taxicab vehicles throughout the contractual term, unless otherwise agreed upon.
Septuagint is
governed by an Operating Services Agreement, dated October 15, 2019 (the “OSA”), by and between DePalma II, Septuagint, and Kirie Eleison. The OSA requires DePalma II to lease its Owned Medallions exclusively through
Septuagint. On September 26, 2024, DePalma II provided notice to Kirie Eleison of its default under certain provisions of the OSA, including a provision requiring Kirie Eleison to lease all of the medallions owned by Kirie Eleison and its
affiliates and transfer their medallion leases to Septuagint. Pursuant to the OSA, Kirie Eleison had 30 days from the date of the notice to cure its default. However, on October 17, 2024, the DePalma Companies and Kirie Eleison signed an
amendment to the OSA that eliminated Septuagint’s exclusive right under the OSA to lease DePalma II’s medallions and provided for a transition period until December 15, 2024 for DePalma II to decide whether to (i) have Kirie
Eleison transfer its 50% interest in Septuagint to DePalma II or (ii) wind down Septuagint. While the transition period originally expired on December 15, 2024, pursuant to the October 17, 2024 amendment, DePalma II and
Kirie Eleison subsequently agreed to further extend the transition period through March 31, 2025 in order to allow DePalma II and Kirie Eleison additional time to, among other things, evaluate their options and consider whether to continue
Septuagint’s operations, or wind Septuagint down and have DePalma II continue to pursue other alternative fleet servicing arrangements with third parties and/or to establish its own fleet servicing entity. Accordingly, there have been no
quantitative and qualitative changes to Septuagint’s ownership or Septuagint’s organizational or operating agreements during this transition period, as the parties are continuing to operate under the original OSA, as amended on
October 17, 2024, which, as noted, only removed the exclusivity provisions. If DePalma II winds down Septuagint, DePalma II would no longer lease any of its Owned Medallions through Septuagint.
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DePalma II intends to continue to pursue its leasing strategy by leasing Owned Medallions either through Septuagint or through a newly formed, wholly owned subsidiary of DePalma II. DePalma II
intends to enter into non-exclusive commercial agreements with third party fleets to assist the company in leasing medallions. The DePalma Companies are in ongoing discussions with Kirie Eleison regarding the
restructuring of its affiliates’ debt. On March 31, 2025, DePalma II and Kirie Eleison agreed to further extend the transition period by which DePalma II may elect to require Kirie Eleison to transfer its membership interest in Septuagint
to April 30, 2025. As of the date of this Annual Report on Form 10-K, the transfer of ownership has not yet occurred.
The
medallion loans are secured by one or more taxi medallions and primarily take the following two forms:
Since
formation, substantially all our medallion loans were acquired via bulk purchases of loan portfolios from prior lenders, many of whom were the originators or lead participants of such loans. In almost all cases, the vast majority of the loans we
acquired were non-performing at the time of acquisition.
When a borrower defaults on a loan, we
have the ability to enforce our rights as a lender under the applicable medallion loan agreement. Historically, we have resolved defaulted medallion loans by (i) restructuring the loan, (ii) repossessing or otherwise obtaining possession
of and/or foreclosing upon the taxi medallion that was collateral for the loan, (iii) enforcing the underlying obligation against the borrower and/or any guarantor of the loan including the personal guaranty or additional collateral, if any, in
the case of Non-MRP+ Loans or (iv) some other negotiated settlement with the borrower, including restructuring, discounted payoff, paydown and surrender and foreclosure and loan enforcement
litigation. For MRP+ Loans, enforcement is limited to foreclosing on the taxi medallion collateral and collecting any deficiency between the foreclosure sale price and the amounts due under the loan from funds provided by the City of New York for
such purpose. Due to the original price of acquisition for each of these sets of loans, we have typically realized gains from each of the scenarios listed above.
Please see “— MRP and MRP+” below “— MRP and MRP+ — Reserve Fund” below for more information.
How Medallions Are Acquired
We acquired our taxi medallion loans and medallions through a series of bulk portfolio transactions comprised of (i) loans with
medallions as collateral and (ii) unregistered foreclosed medallions. To date, we have not purchased any additional medallions since our last bulk purchase transaction in February 2020.
As part of the resolution process on defaulted loans where DePalma I is the lender, DePalma II ultimately acquires such collateralized
medallions via assignment from DePalma I following DePalma I’s acquisition of such medallions from the defaulted borrower through a method of UCC disposition.
The three primary UCC disposition methods are (i) public auction, (ii) surrender and (iii) private sale. To date, we have only
acquired loans with medallions as collateral by purchasing portfolios of taxi medallion loans from third-party secured lenders. A description of each of these UCC disposition methods is set forth below.
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Public Auction
Typically, a public auction is held in connection with foreclosure proceedings. A third-party bidder may seek to acquire the auctioned
medallion via cash bid or the existing secured lender may elect to bid on the medallion via a credit bid to acquire the collateral. Credit bidding allows a secured lender to use the amount of its secured debt as all or part of its bid to acquire the
secured asset. When a secured lender “credit bids”, the secured lender bids at auction for the medallion with all or a portion of the delinquent borrower’s debt obligation secured by the medallion. For example, if the delinquent
borrower’s total debt obligation is $200,000, the secured lender can credit bid up to such amount. If the secured lender credit bids $175,000 and is the winning bidder at auction with such bid, the secured lender will obtain the legal right to
ownership of the medallion and the difference between the winning credit bid ($175,000) and $200,000 becomes an unsecured “deficiency” obligation owed to the secured lender by the delinquent borrower. Conversely, in the event a bidder
offers $205,000 at auction, which bid would be in excess of the secured lender’s credit bid of $200,000, in order for the secured lender to prevail at the auction and acquire the medallion, the secured lender would have to bid in excess of
$205,000 (i.e., $206,000) and settle the difference between the $200,000 credit bid and the winning bid (of $206,000) with cash. To date, in instances where we acquired medallions via credit bid, we have not had to bid an amount in excess of our
credit bid. As such, we have recorded no cash outflows due to our credit bidding activity.
A third party may also seek to acquire
medallions via credit bid assignment whereby the third party purchases the right to a secured lender’s credit bid, which is then assigned to the third party purchaser, who, in turn, steps into the place of the prior secured lender with the
legal right to credit bid, and, if such bid is the winning bid, completes the UCC disposition acquiring the previously collateralized medallion.
Additionally, holders of portfolios of medallions or loans collateralized by medallions may choose to sell their positions via an auction. In
the past, we have purchased portfolios of medallions and loan portfolios containing both loans secured by medallions and Owned Medallions.
As of December 31, 2024, of our 2,061 Owned Medallions, 1,129, or approximately 55%, were acquired via public auction credit bid and 181,
or approximately 9%, were acquired via public auction for cash.
Surrender
In lieu of a public auction, a secured lender could acquire a medallion via the UCC disposition method of surrender. A surrender is effectively
a private transaction between delinquent borrower and secured lender whereby the delinquent borrower agrees to surrender the collateral secured by the loan (i.e., the medallion) plus, in some cases, additional cash, to the secured lender, in
complete satisfaction of the borrower’s obligation.
Similar to a credit bid assignment, a third party may also purchase a loan from
a secured lender by stepping into the place of the secured lender under the surrender agreement, and ultimately acquiring a medallion through the surrender agreement previously initiated, but not completed by the assigning secured lender with its
borrower.
As of December 31, 2024, of our 2,061 Owned Medallions, 238, or approximately 12%, were acquired via surrender.
Private Sale
The
owner of a medallion may also choose private sale as a method of UCC disposition. A private sale is a negotiated transaction between the owner of the medallion and a third-party buyer.
Since inception, we have acquired our current medallion portfolios in a series of private medallion and medallion collateralized loan
portfolio purchases, whereby we directly acquired 361 Owned Medallions and loans collateralized by 4,189 medallions. The table below sets forth information regarding when we acquired New York City medallions directly or medallions serving as
collateral for acquired loans, as applicable, and the price paid in those acquisitions. With respect to acquired loans, such loans are almost universally in default and
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following such acquisition, DePalma I may choose to acquire direct ownership of the medallion collateral through a UCC disposition method (i.e., public auction or surrender), which medallion
would then be assigned to DePalma II.
Private Sale Acquisitions ofMedallions Avg. Price Paid($)
Our Market
A NYC taxi medallion is the only permitted license to operate a taxi and accept street hails in the City of New York. There are a limited
number of taxi medallions that have been issued to date and, as of December 31, 2024, the number of those licenses was capped by the TLC at 13,587. Selling price information publicly released by the TLC is a factor considered in valuing DePalma
II’s New York City medallions along with other inputs, including the amount per medallion that was backstopped by the City of New York per the MRP+ program, and DePalma I’s historical loan realization activity. See
“Management’s Discussion and Analysis of Financial Condition and Results of Operations of DePalma—Critical Accounting Policies and Estimates—Fair Value Measurements.” The below table illustrates the average sale price
of a NYC taxi medallion based on transfers of medallions:
Transfers of Medallions
Source: TLC and management estimates
(3) Each medallion transfer is treated as one transaction.
We believe the increase in the 2022 average and maximum sale prices from 2020 and 2021 primarily reflected the improvement in the market
driven by COVID’s diminishing impact, the MRP+ stabilizing the market and providing relief to borrowers, and the telegraphed rate increase that went into effect in December 2022 improving driver confidence in the market. The illiquidity and
distressed nature of the taxi industry over the last several years has resulted in a wide range of reported medallion sale transaction values, including many of which we believe are not reflective of the intrinsic value of the collateral or the
potential recoveries. We believe the lack of a financing market for NYC taxi medallions creates an environment where medallion values do not reflect their underlying intrinsic value.
To facilitate our specialty finance business of financing and owning of NYC taxi medallions, our lending business currently acquires,
restructures and owns loans collateralized by taxi medallions, and Septuagint, an operating joint venture, manages a TLC-licensed taxi fleet that utilized 231 of our Owned Medallions as of
December 31, 2024. For the years ended December 31, 2024 and December 31, 2023, Septuagint utilized 231 and 230 medallions, respectively. However, if we terminate the OSA or acquire a 100% ownership interest in
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Septuagint, then in the future we intend to lease medallions through either a newly formed, wholly owned subsidiary of DePalma II or through third-party fleets. We intend to transition our
currently operating Owned Medallions at Septuagint to either DePalma II’s newly formed subsidiary or through third-party fleets. In the future, we expect to sell medallions, potentially including seller financing. Medallion owners are generally
individual taxi owners/operators, taxi fleet operators or passive investors looking to monetize the medallion asset, which they typically do by leasing them to fleet operators who look to procure additional operating capacity.
Medallions are typically sold either through a negotiated transaction, often using TLC-licensed
brokers, or at a foreclosure auction. The TLC does not have a role in the auction process, which is run by secured lenders. Upon a default, the UCC provides a secured lender with wide discretion to dispose of the medallion collateral via public
auction, private sale, or otherwise. In the case of a public auction, the UCC requires a secured lender to advertise the auction to the public, notify certain other secured lenders and allow qualified bidders to participate. However, the UCC does
not require that the auction be open to the general public or that the results of the auction be disclosed publicly.
To the extent that a
medallion buyer registers its ownership with the TLC after a public auction, the buyer and seller self-report the purchase price in connection with the transfer application to the TLC. These prices are then reflected in the TLC’s monthly
medallion transfer reports. The TLC’s medallion transfer reports, however, do not provide medallion numbers, sellers, buyers, or other identifiers that would allow a determination of the results of a specific auction. In addition, there is no
publicly available data on how often public auctions of medallions have occurred in the past.
Historically, NYC has sold some new
medallions via sealed bids, but has not done so since 2013 and we do not expect them to resume anytime soon. However, the TLC does not regulate the method or economic terms of a medallion transfer. The TLC’s involvement in a medallion transfer
is limited to confirmation that the open market transferor and transferee submitted a complete medallion transfer package, settling any unpaid taxes or fines associated with the medallion and registration of the medallion in the name of the new
owner. When a medallion is transferred, the new owner must register the medallion in its name with the TLC in order for a medallion to be deployed on a working taxi vehicle. In connection with such registration, the transferor and transferee also
report to the TLC the sales price and manner of medallion acquisition. The TLC makes available on its website certain limited information with respect to medallion transfers, including the month and year of transfer and the method of transfer, which
is self-reported and therefore imprecise. Because the TLC is not involved with the method or economic terms of a medallion transfer, medallion transferees are responsible for self-reporting the method of transfer to the TLC and any analysis of data
available from the TLC requires significant assumptions, we are unable to reliably estimate the percentage or volume of medallions transferred through each transfer method during any given period.
Substantially all of our operations and assets are concentrated within the NYC taxi medallion market. We have minor lending exposure to other
medallion markets in cities across the United States, including, among others, Chicago and Philadelphia, however, as of December 31, 2024, medallion markets outside of NYC accounted for a de minimis percentage of our total
assets.
Since formation, DePalma I has resolved a significant portion of its non-performing loans
via UCC public auction. DePalma I engaged outside counsel to complete each of its auctions (e.g., review the file, run searches, establish the terms and condition of auction, send auction notices, publish the auction, communicate with
potential bidders, conduct the auction, and provide an affidavit detailing the results of each auction) and confirm that the auction process is compliant with the UCC and the respective loan documents.
For auctions in which DePalma I is the lender or has been assigned the right to credit bid, DePalma I has the right to credit bid and often
exercises its right to credit bid to acquire the medallion collateral instead of selling the medallion collateral to a third-party. For a description of what it means to “credit bid”, see the section entitled “—How Medallions
Are Acquired—Public Auction” above. For the non-MRP+ auctions, DePalma I has the right not to set a reserve price.
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The table below summarizes DePalma I’s auction and credit bid activity for each year
since formation.
2022 — — — $ — — $ — — $ —
Medallion Lending
We believe we are the largest NYC taxi medallion lender with a medallion loan portfolio collateralized by approximately 1,760 medallions as of
December 31, 2024. Substantially all of the medallion loan portfolio was purchased from prior lenders. Additionally, as of December 31, 2024, we held approximately 2,061 Owned Medallions, most of which have been acquired through numerous
foreclosures conducted under the UCC or through consensual resolutions with borrowers. Certain of those medallions have been deployed and are currently operating in a joint venture affiliate fleet operating business, Septuagint.
As of December 31, 2024, our NYC taxi medallion loan portfolio consisted of the following:
MRP+ Loans(1)(2) Non-MRP+ Loans(3)
(1) The MRP+ became effective during the fourth quarter of 2022.
(4) Unpaid Principal Balance excludes loans no longer secured by medallions.
A prospective NYC taxi medallion owner must qualify under the taxi medallion ownership standards established and enforced by the TLC to
transfer the medallion. These standards, among others, prohibit individuals with criminal records from owning taxi medallions, require that the funds used to purchase taxi medallions be derived from legitimate sources, and mandate that taxi vehicles
and meters meet TLC specifications. In addition, before the TLC can approve a taxi medallion transfer, the TLC requires a letter from the seller’s insurer stating that there are no outstanding claims for personal injuries in excess of insurance
coverage. After the medallion transfer is approved, the medallion owner’s taxi is subject to quarterly TLC inspections.
Most NYC
taxi medallion transfers are handled through our third-party servicer, Field Point Servicing LLC (“Field Point”), a servicer of NYC taxi medallion loans that we believe to be the largest in the NYC taxi market, and by taxi medallion
brokers, who are current and former NYC taxi medallion owners, licensed by the TLC. In addition to brokering taxi medallions, we work with these brokers to arrange for TLC documentation insurance, vehicles, meters, and financing. We have
relationships and interactions with many of the most active brokers, some of which are or have been borrowers of ours, and we intend to leverage these relationships with brokers to expand our sales channel to provide financing for medallion
purchases.
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While medallion loans become delinquent or otherwise go into default, our medallion loans
are secured by the underlying taxi medallions and, with respect to Non-MRP+ Loans, are further supported by personal guarantees of, or direct recourse to, the obligor owners, shareholders or equity
members, as well as additional collateral, if applicable. To date, a substantial portion of our Non-MRP+ Loans portfolio is in default. When a borrower defaults on
a Non-MRP+ Loan, we generally decide whether to restructure the underlying loan, initiate a process of foreclosure and/or pursue individual and entity borrowers, guarantors and other obligors through
a judicial process. For the period ended December 31, 2024, our top 10 borrowers accounted for 74% of our NYC Non-MRP+ loan portfolio based on medallion count.
MRP and MRP+
The
City of New York has established various programs to provide debt relief for eligible NYC taxi medallion owners, including the MRP and the MRP+, which enhances the MRP by providing NYC taxi medallion loan lenders like us with municipal credit
support. We believe these initiatives are indicative of the City of New York’s backing of the taxi medallion industry as a key piece of NYC’s transportation infrastructure and provide meaningful support for medallion collateral values via
the economic commitments made through these programs. As a result, as of December 31, 2024, we have been able to restructure and reperform MRP+ eligible loans backed by 1,536 NYC taxi medallions. This has the impact of increasing expected
future collections of interest and principal as significant number of these loans were not performing or in default prior to entering the programs.
Medallion Relief Program (MRP)
On March 9, 2021, the City of New York announced the MRP to assist economically distressed individual taxicab medallion owners. The
purpose of the MRP is to support the recovery of the taxicab industry in the City of New York and return taxicabs to service by providing relief to owners of taxi medallions who are currently unable to make debt service payments on loans incurred to
purchase such medallions. The MRP helps eligible medallion owners restructure their outstanding debt to more sustainable levels on more favorable terms. The MRP allocated $65 million in federal grant money from the American Rescue Plan Act of
2021 to provide a $20,000 per medallion principal reduction payment and up to $9,000 in monthly debt relief payments in connection with the restructuring of taxicab medallion loans to reduce principal balances and lower monthly payments for taxicab
medallion owners.
The MRP was intended to significantly lower the overall debt service obligations for eligible taxi medallion owners.
Among other requirements, the MRP is only available to individual medallion owners who own five or fewer medallions. The MRP is available to all medallion loan lenders to participate upon agreement to provide reductions in outstanding medallion loan
balances consistent with MRP parameters. Any medallion owner with a qualified loan under the MRP who defaults on a qualified loan will be prohibited from acquiring another medallion for a period of five years.
To be eligible for the MRP, a borrower must satisfy several criteria, including but not limited to:
• having an ownership interest in no more than six (6) NYC taxi medallions; and
The original MRP program (which is not subject to credit
support by the City of New York) was announced in March 2021 and became effective in September 2021. The MRP+ program (which is subject to deficiency credit support by the City of New York) was announced in November 2021 and became effective during
the fourth quarter of 2022. Loans under the original MRP program that were not restructured under the MRP+ program are not MRP+ Loans.
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Medallion Relief Program+ (MRP+)
On November 3, 2021, the City of New York further reached an agreement with the New York Taxi Workers Alliance (“TWA”), a
labor union representing taxicab drivers, and MAM, to supplement the MRP with a NYC-funded deficiency credit support mechanism (the “Reserve Fund”) to achieve greater principal
reduction and lower monthly payments for taxicab medallion loans that were restructured through the MRP, and to permit restructuring of additional medallion loans. On March 17, 2022, the TLC adopted rules establishing the eligibility criteria
for applying for supplemental loan deficiency credit support through the MRP+.
As a result, the City of New York has appropriated a total
of $115 million in funding to implement the MRP, including (i) $65 million to be utilized to provide upfront principal reduction payments in the form of a grant equal to $30,000 per medallion to lenders as part of each restructuring
transaction and (ii) $50 million to fund the Reserve Fund (as described below under “— Reserve Fund”). The Reserve Fund also serves to both make loan payments for a period of time to participating lenders
following the occurrence of a payment default by a participating borrower, as well as to satisfy any deficiency realized upon foreclosure of medallion collateral.
Under the MRP+, eligible medallion loans with a principal balance of $200,000 or more will be reduced to an initial principal balance of
$200,000, and further reduced to $170,000 per medallion (after a $30,000 per medallion principal reduction payment in the form of a grant from the Reserve Fund). Existing medallion loans with a principal balance of $200,000 or less will have a
principal balance equal to the existing principal balance reduced by (i) $30,000 per medallion and (ii) further reduced by 5% of the post-paydown principal balance per medallion resulting from (i) above. In no event will the principal
balance of any eligible medallion loan exceed $170,000 per medallion.
Unlike Non-MRP+ Loans, where a significant portion are currently in default, medallion loans
participating in the MRP+ are restructured and therefore not in default immediately following participation in the MRP+. Moreover, any personal guarantees and recourse to the borrowers, to the extent those existed prior to the MRP+ restructurings,
are released once the loan is restructured. Because MRP+ participating borrowers may still default on their payment following such restructuring, we may ultimately decide to foreclose on medallions securing such loans pursuant to the terms of the
MRP+. If there is any deficiency as a result of the foreclosure, funds from the Reserve Fund will be used to pay us the amount of any deficiency. In addition, following a payment default, funds from the Reserve Fund will be released to make
regularly scheduled payments of interest and principal, pending foreclosure and satisfaction of the loan balance, either through the foreclosure process entirely, or through a combination of the proceeds realized upon foreclosure plus amounts
released from the Reserve Fund to pay any deficiency.
As of December 31, 2024, approximately 32% of our MRP+ Loans, based on
medallion count, were delinquent. All delinquent loans that were outside of their grace period had regular payments being made out of the Reserve Fund.
Because the window for a borrower to go through the MRP+ program ended June 30, 2023 and new applicants are only being accepted on a case-by-case basis, we do not expect substantially more borrowers to participate in the MRP+ program. Over time, we intend to gradually continue disposition proceedings with
respect to MRP+ non-performing loans, which would decrease the percentage of our loan portfolio eligible for credit support. Non-MRP+ loans are not eligible for credit
support from the Reserve Fund and, therefore, any new non-MRP+ loans added to our portfolio would be ineligible for such credit support. To the extent nonperforming
non-MRP+ loans in our portfolio are replaced with performing loans, we would anticipate non-MRP+ loan delinquency to decrease and associated debt service payments to
correspondingly increase. However, to the extent adverse macroeconomic factors arise in the future, delinquencies could increase, which could negatively impact debt service payments from non-MRP+ loans.
The deadline for eligible borrowers to apply to participate in the MRP+ was January 31, 2023 and the official deadline to close
restructured loans under the MRP+ was June 30, 2023. Nonetheless, the TLC is
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continuing to close loans under the program for a handful of eligible borrowers who registered prior to the June 30, 2023 deadline but who have been otherwise unable to close due to
extenuating circumstances. Additional exceptions are reviewed by the TLC on a case-by-case basis.
Standardized MRP+ Loan Terms
All of our medallion loans restructured under the MRP+ contain the following terms, among others:
• a maturity of 25 years from the date of restructuring;
• annual interest rate of 7.3%;
• fixed monthly payments calculated on a fully-amortizing basis;
As of December 31, 2024, we have restructured loans under the MRP+ representing approximately
$229 million in post-restructured principal and 1,536 medallions. As a consequence of these restructurings, we forgave approximately $236 million in principal and received approximately $44 million in upfront principal reduction
payments, all of which came from the City of New York.
Reserve Fund
The Reserve Fund was established in the City of New York in 2022 and is available to cover deficiencies and other items on all participating
loans owned by participating lenders, subject to various mechanisms designed to limit risk on the availability of funds to support defaulted loans. Fund-level protections designed to preserve the balance of the Reserve Fund include, among others:
Replenishment and Release Mechanism
If the Reserve Fund balance is less than 1.0x the annual debt service of participating loans, then:
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If the balance of the Reserve Fund is less than 0.5x the annual debt service of
participating loans, then the City of New York, acting through the Mayor, is required to seek an appropriation for the next fiscal year to replenish the Reserve Fund to 1.0x coverage of annual loan debt service with payment to be made by the City of
New York by September 30 of such year.
If the balance of the Reserve Fund falls below 0.25x the annual debt service of participating
loans, then the MRP+ documents require immediate notification to the City of New York and/or the Mayor that it should request an additional appropriation in the current fiscal year to replenish the Reserve Fund to 0.25x coverage of annual loan debt
service.
The Reserve Fund is not a guarantee of the City of New York to repay the MRP+ Loans, nor is it our asset nor pledged to us.
Furthermore, the City of New York’s agreement to replenish the Reserve Fund is not a debt of the City of New York under or within the meaning of the New York State Constitution or the Local Finance Law of the State, nor are the MRP+ Loans
deemed to be debts of the City of New York. As a result, the City of New York has no obligation to pay principal of or interest on any of the MRP+ Loans.
Loan Portfolio
Our NYC loan portfolio is comprised of two categories: (i) MRP+ Loans
and (ii) Non-MRP+ Loans.
MRP+ Loans. As of
December 31, 2024, we had approximately $204 million of unpaid principal balance represented by loans that have been or are expected to be restructured pursuant to the MRP+ and benefit from credit enhancement and support from the City of
New York (the “MRP+ Loans”). In the aggregate, these MRP+ Loans are collateralized by 1,382 NYC taxi medallions. While each MRP+ Loan has a different unpaid principal balance, all other terms are substantially identical, including
carrying a 7.3% interest rate, a 25-year maturity and a monthly payment calculated based on a 25-year amortization schedule. See
“— Medallion Relief Program+ (MRP+)” for more information about the MRP+ and our portfolio of MRP+ Loans. For the year ended December 31, 2024, all MRP+ Loans were actual MRP+ Loans that participated in the
MRP+ program and as such, there were no forecasted amounts of MRP+ Loans. Going forward, we do not expect to include anticipated MRP+ Loans in our MRP+ loan asset value.
Our MRP+ Loans represent a significant portion of our current regular monthly collections of principal and interest.
DePalma I’s MRP+ portfolio was approximately $204 million in aggregate principal amount as of December 31, 2024, which
represents approximately 74% of the total MRP+ program by unpaid principal balance as of such date. The Reserve Fund balance is approximately $37 million as of December 31, 2024. As of December 31, 2024, the default rate of our MRP+
portfolio is 35% based on aggregate principal amount, and the default rate of the broader MRP+ program is approximately 35%.
Non-MRP+ Loans. As of December 31, 2024, we had approximately $143 million of unpaid principal balance represented by NYC loans whose borrowers
(i) were not eligible to participate in the MRP+ or (ii) chose not to participate in the MRP+ (the “Non-MRP+ Loans”). A significant portion of these loans
currently are in default and were at the time we acquired them. Many of these loans are to borrowers who own large numbers of medallions and maintain active taxi fleet operations. As of December 31, 2024,
our Non-MRP+ Loans are collateralized by 378 NYC taxi medallions. Our Non-MRP+ Loans are expected to be resolved over the next few years in any one
of the following ways.
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Our Non-MRP+ Loans represent a nominal portion of our current monthly
collections of principal and interest, as compared to our MRP+ Loans. Beginning in 2023, we and Field Point began active negotiations with all of our delinquent borrowers and, in some cases, have commenced enforcement actions for substantially all
of the Non-MRP+ Loans that are more than one year past maturity. In some cases, we have agreed upon terms for the resolution or restructuring of those defaulted loans. As we resolve these loans, we expect
monthly collections of principal and interest to increase or that we will collect meaningful cash payments in resolution of each borrower relationship. However, there can be no assurance that monthly collections of principal and interest will
increase, or that we will collect such cash payments, if at all.
The table below sets forth our loan resolution activity during the
financial statement periods presented.
Since inception, we had 108 medallions loans
participate in the original MRP program, of which 79 subsequently participated in the MRP+ program and the remaining 29 remained as non-MRP+ loans. We received total debt paydowns under the original MRP
program of $1.6 million and $0.4 million in 2021 and 2022, respectively.
Additionally, we received $0.2 million and
$0.1 million of debt service payments from the MRP program in 2021 and 2022, respectively. There will not be an impact on future financial results as the MRP program is closed. In addition, as of December 31, 2024, 14% of loans by medallions
were non-performing (i.e., more than 30 days past due). Of the original MRP loans, 3% were foreclosed, 14% remained in default, 65% are current and 19% were paid off by December 31, 2024.
Our fair value calculation for New York City medallions includes a variety of factors including the amount backstopped by New York City in the
MRP+ program. After significant negotiations between the City of New York, the Taxi Workers Alliance, and the DePalma Companies, the parties agreed to a $200,000 per
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medallion total price for MRP+ loans. New York City agreed to provide an upfront principal reduction grant payment equal to $30,000 per medallion to lenders who participated in the MRP+ program.
New York City also agreed to provide a deficiency credit support mechanism (the previously described “Reserve Fund”) of the post-restructuring unpaid principal value up to $170,000 per medallion, plus interest and collection costs.
Considering that the agreed-upon price at the time of the restructuring was $200,000 per medallion with a subsequent paydown equal to $30,000, the maximum unpaid principal balance per medallion for an MRP+ loan is $170,000 before taking into account
interest and collections costs. In effect, this deficiency credit support mechanism supports the entire unpaid principal balance of the MRP+ loans. The Reserve Fund lasts for the entire 25-year term of the
underlying loan. As of December 31, 2024, 1,214 loans, 1,382 medallions (which includes medallions underlying loans that went through the MRP+ program and were subsequently paid down), and $203.7 million in unpaid principal balance in
DePalma I’s portfolio was backstopped by the Reserve Fund in addition to the medallion collateral.
We believe that even following
the completion of the MRP+ program, the New York City backstopped value per medallion is a relevant input in the valuation of medallions. The negotiated value per medallion from the MRP+ program represents a three-party consensus view of medallion
value agreed upon by the City of New York, the Taxi Workers Alliance, and the DePalma Companies, which are all parties that understand the underlying economics of medallions.
Owned Medallions — Fleet and Leasing
Our Owned Medallions consist of medallions we own directly as well as those where, subject to the TLC ownership transfer approval process, we
have the legal right to ownership. As of December 31, 2024, we had approximately 2,061 Owned Medallions, a portion of which is, as of December 31, 2024, used in Septuagint’s operating fleet, acquired primarily as a result of
enforcement actions involving defaulted medallion loans we owned. We believe our ownership makes us the largest single owner of medallions in the NYC taxi market, providing us with significant strategic advantages in executing our business strategy
and allowing us to sell medallions, potentially including seller financing, without the need for incremental capital.
In 2019, we
commenced activities to deploy our Owned Medallions through Septuagint, an operating joint venture with Kirie Eleison, an unaffiliated strategic joint-venture partner, in which we will have the right to exercise governance control once 85% of
DePalma II’s Owned Medallions (as of November 1, 2019) have been leased to and are operated by Septuagint. As of December 31, 2024, approximately 62% of DePalma II’s Owned Medallions as of November 1, 2019 are being leased
to and operated by Septuagint. As of December 31, 2024, Septuagint is governed by a board of four directors with Kirie Eleison and DePalma each having the ability to appoint two directors. Once 85% of DePalma II’s Owned Medallions as
of November 1, 2019 have been leased to and are operated by Septuagint, the structure of the board will change such that if either we or Kirie Eleison provides over 60% of the medallions in use by Septuagint, then such party will be entitled to
appoint an additional board member, resulting in an increase of the board size to five directors. Certain major decisions (corporate transactions, new lines of business, certain employment decisions) require the unanimous consent of the Septuagint
board of directors. Additionally, the operations of Septuagint are governed by the OSA, which establishes the parameters of Septuagint’s day-to-day operations and
establishes exclusivity between DePalma II and Kirie Eleison. Pursuant to the OSA, Septuagint has agreed to provide customary day-to-day taxicab services, such as the
subleasing of medallions to drivers (both with respect to DePalma II’s Owned Medallions and for the medallions owned by Kirie Eleison and its affiliates), the subleasing of DePalma II’s taxicab vehicles to drivers and the maintenance,
inspection and repair of the taxicabs. DePalma II has also agreed to provide assistance to Septuagint with the preparation of business plans, strategic planning, and operational modeling. Kirie Eleison agreed to transition employees and personal
property to Septuagint and cause its affiliate to lease space to Septuagint for use as a taxicab business. The exclusivity provisions in the OSA provide that DePalma II and Kirie Eleison will work together on taxi-related services and activities
during the term of the OSA and (i) so long as DePalma II leases Owned Medallions, all of such Owned Medallions will be leased to and operated by Septuagint, and (ii) so long as Kirie Eleison or its affiliates leases medallions, such
medallions will be leased to and operated by Septuagint. The OSA had an initial term of 36 months, and such term automatically renews
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for 12-month periods, unless terminated by DePalma II or Kirie Eleison upon written notice at least 90 days prior to the expiration of any
such renewal term or as otherwise agreed by the parties. Additionally, the OSA can be terminated with cause upon one day prior written notice to the other parties upon failure to cure a breach of the OSA within the
30-day cure period. In the event of a termination, the parties agreed to work in good faith to wind down Septuagint while maintaining taxicab services, producing financial and operational reporting, and
executing an orderly separation. The exclusivity provisions do not have a material impact on DePalma II and its financial results given that the OSA is terminable, the services being provided thereunder can be replaced in the ordinary course
upon termination, and, as reflected in DePalma II’s financial statements, Septuagint’s current operations are immaterial to DePalma II’s financial performance. On September 26, 2024, DePalma II provided notice to Kirie Eleison of
its default under certain provisions of the OSA, including a provision requiring Kirie Eleison to lease all of the medallions owned by Kirie Eleison and its affiliates and transfer their medallion leases to Septuagint. Pursuant to the OSA, Kirie
Eleison had 30 days from the date of the notice to cure its default. However, on October 17, 2024, the DePalma Companies and Kirie Eleison signed an amendment to the OSA that eliminated Septuagint’s exclusive right under the OSA to
lease DePalma II’s medallions and provided for a transition period until December 15, 2024 for DePalma II to decide whether to (i) have Kirie Eleison transfer its 50% interest in Septuagint to DePalma II or (ii) wind down
Septuagint. While the transition period originally expired on December 15, 2024, pursuant to the October 17, 2024 amendment, DePalma II and Kirie Eleison subsequently agreed to further extend the transition period through March 31,
2025 in order to allow DePalma II and Kirie Eleison additional time to, among other things, evaluate their options and consider whether to continue Septuagint’s operations, or wind Septuagint down and have DePalma II continue to pursue other
alternative fleet servicing arrangements with third parties and/or to establish its own fleet servicing entity. Accordingly, there have been no quantitative and qualitative changes to Septuagint’s ownership or Septuagint’s organizational
or operating agreements during this transition period, as the parties are continuing to operate under the original OSA, as amended on October 17, 2024, which, as noted, only removed the exclusivity provisions. If DePalma II winds down
Septuagint, DePalma II would no longer lease any of its Owned Medallions through Septuagint. DePalma II intends to continue to pursue its leasing strategy by leasing Owned Medallions either through Septuagint or through a newly formed, wholly owned
subsidiary of DePalma II. DePalma II intends to enter into non-exclusive commercial agreements with third party fleets to assist the company in leasing medallions. The DePalma Companies are in ongoing
discussions with Kirie Eleison regarding the restructuring of its affiliates’ debt. On March 31, 2025, DePalma II and Kirie Eleison agreed to further extend the transition period by which DePalma II may elect to require Kirie Eleison to
transfer its membership interest in Septuagint to April 30, 2025. As of the date of this Annual Report on Form 10-K, the transfer of ownership has not yet occurred.
Septuagint is a medallion leasing agent and taxi fleet operating company based in Long Island City, Queens, New York, licensed by the TLC
as an agent/broker for managing NYC taxi medallions. As of December 31, 2024, Septuagint utilized 231 of our Owned Medallions and managed a fleet of approximately 231 vehicles and 261 drivers via
a TLC-licensed fleet.
DePalma II entered into agreements with Septuagint which granted
Septuagint the exclusive right to operate or sublease medallions and related taxicab vehicles owned by the mini-LLCs. The monthly rental payments for the leases of the medallions are $1,500 per medallion. Septuagint is separately obligated to pay
for the vehicles under various guaranty agreements. Septuagint is granted full and exclusive authority to sell (or lease) the vehicles on behalf of the mini-LLCs at prices that Septuagint shall determine in its sole discretion.
The mini-LLCs retain ownership interests in the medallions and taxicab vehicles throughout the contractual term, unless otherwise agreed upon. As a result of COVID-19, Septuagint’s ability to
make payments on the medallion and vehicle leases significantly deteriorated and DePalma II implemented a payment holiday beginning in March 2020 through April 30, 2022. Commencing in May 2022, Septuagint began making payments on the vehicle
leases, which are currently recorded as a deposit liability in the Consolidated Balance Sheet of DePalma II, however, payments on the medallion leases have not yet resumed through December 31, 2024.
We continue to monitor Septuagint’s ability to pay its medallion lease payment obligations, as well as its working capital note and
vehicle payment obligations. In light of Septuagint’s current cash constraints, Septuagint continues to delay payment on its medallion leases. Currently, DePalma II does not have an
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anticipated date for when Septuagint will resume its medallion lease payment obligations. DePalma II’s and Septuagint’s management each currently believe the continued delay of
medallion lease payments is the best course of action because it allows Septuagint to retain such payments for working capital, which is primarily deployed to Septuagint’s workforce at this time. In order for Septuagint to grow its fleet
consistent with its growth strategy, Septuagint will need to attract and retain additional drivers. Accordingly, Septuagint remains focused on the goal of achieving profitability by attracting and retaining additional drivers over time, at which
point medallion lease payments could recommence. However, the market for drivers remains fluid and subject to general economic conditions. As a result, DePalma II is currently unable to determine when, if at all, Septuagint’s fleet will achieve
profitability. In the event that our relationship with Septuagint is terminated, we do not expect to be repaid on the medallion lease payments or the working capital notes that mature in June 2026.
Further, certain entities owned by the principals of Kirie Eleison are borrowers of Non-MRP+ Loans
and, as a result, owe approximately $38 million in principal (excluding accrued unpaid regular and default interest payment obligations) to DePalma I under such loans. Similar to substantially all of DePalma I’s Non-MRP+ Loan portfolio, these loans are in default. Although distinct contractually, given overlap of the parties, a resolution between Kirie Eleison and DePalma I regarding the
Non-MRP+ Loans could adversely impact DePalma II’s current operating relationship with Septuagint. For example, we may resolve DePalma I’s lending relationship through negotiating a resolution with
the owners of Kirie Eleison that (i) removes Kirie Eleison as an owner and joint-venture partner in Septuagint and/or (ii) results in Septuagint being wound-down.
We plan to continue to increase the number of taxis we deploy either (i) in Septuagint’s fleet or (ii) through either a newly
formed, wholly owned subsidiary of DePalma II or through third-party fleets as we attract new drivers, acquire new vehicles and take ownership of more medallions through foreclosures on our existing medallion loans. In the future, we also plan to
purchase additional vehicles and either (i) lease them to Septuagint or (ii) deploy them through either a newly formed, wholly owned subsidiary of DePalma II or through third-party fleets. We believe that this growth will allow us to
continue to increase cash flows from our Owned Medallions while also developing a pipeline of taxi drivers for the future sale of medallions, which could include related seller financing. However, such expansion plans may be costly and there is no
assurance that we will be able to expand a taxi fleet, if at all, or that this initiative will ultimately have the intended effects to operating results. The primary factors that have limited the number of taxis in Septuagint’s fleet are
availability of cars, the availability of drivers at certain times of the year, a desire by Septuagint to grow the fleet in a methodical manner that would not require the need for a capital infusion, and Septuagint’s need to scale up its
operations as the fleet grows. In addition, Septuagint needs access to medallions in order to grow its fleet. DePalma II has discretion to determine, in its business judgment, the pace at which it will deploy its medallions for lease to Septuagint.
In the event we are unable to scale Septuagint as desired, we may have to reevaluate the relationship and pursue other ventures with third parties to establish and grow a taxi fleet, however, there can be no assurance that we will be able to
identify a suitable alternative. Any changes to the current Septuagint relationship will likely cause short-term operational disruptions and may negatively impact results, including our ability to collect on our various obligations from Septuagint.
See “Risk Factors—Risks Related to DePalma’s Business—Changes to Septuagint, our operating joint venture with Kirie Eleison, an unaffiliated strategic joint-venture partner, could have
negative impacts on our business.”
On November 15, 2024, DePalma II entered into a
non-exclusive servicing agreement with an unrelated taxi fleet to provide operational support and access to physical garage and office space for our medallion leasing business.
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The table below sets forth the amount of medallion lease payments deferred and vehicle
guaranty payments deferred with Septuagint during each period presented.
Vehicle Guaranty Payments $ 624,087 $ — $ —
Competitive Strengths
We believe that we have significant competitive strengths within the NYC taxi medallion industry.