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LONDON, UK / ACCESSWIRE / October 19, 2017 / Pro-Trader Daily takes a look at the latest corporate events and news making the headlines for NewStar Financial, Inc. (NASDAQ: NEWS) ("NewStar"), following which we have published a free report that can be viewed by signing up at http://protraderdaily.com/optin/?symbol=NEWS. First Eagle Investment Management announced October 17, 2017, that it has signed an agreement to acquire NewStar Financial, a specialized commercial finance Company specializing in direct lending to middle-market Companies and management of broadly syndicated loans. The transaction has been done via First Eagle's holding Company, First Eagle Holdings, Inc. For immediate access to our complimentary reports, including today's coverage, register for free now at:
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Details of the deal
The transaction brings NewStar, which manages approximately $7.3 billion of assets across multiple credit funds, under the umbrella of independent, privately-owned investment firm First Eagle which has approximately $116 billion in assets under management (AUM). Once the transaction is complete, First Eagle plans to offer new credit strategies to its institutional and retail investors.
As a part of the same transaction, NewStar has signed an agreement with a newly formed investment fund sponsored by GSO Capital Partners LP, the global credit investment platform of Blackstone Group L.P. NewStar has agreed to sell its portfolio of investment assets which include middle-market loans and other credit investments of approximately $2.4 billion. The First Eagle/NewStar deal is entirely dependent on GSO Capital closing of NewStar's assets sale transaction. Once the deal is closed with GSO Capital, NewStar will enter into a separate servicing agreement with the former company wherein NewStar's team will continue to service the portfolio of assets sold to GSO Capital.
Offer Price
First Eagle has agreed to pay NewStar's shareholders a total consideration of $12.32 to $12.44 for each NewStar's share. As per the terms of the agreement, First Eagle will initially pay NewStar's shareholders cash of $11.44 plus one non-transferable contingent value right (CVR) for each NewStar's share. The offer price is at a 10.4% to 11.5% premium of NewStar's stock's 3-month volume weighted average price of $11.16 on October 16, 2017, the last trading day before the deal was announced.
NewStar's shareholders are entitled to receive tax refunds on a pro-rata basis against each CVR. On closing of the deal, NewStar would receive tax refunds due to losses incurred because of the sale of assets to GSO Capital. NewStar plans to distribute 30% of any such tax refund immediately on receipt and the balance amount would be held in an escrow account till it is approved by the Congressional Joint Committee on Taxation (JCT) or the completion of applicable tax audits. According to NewStar the tax refunds would be approximately $1 per share if the transaction closes in FY17 and it would be approximately $0.88 per share if the transaction closes in FY18. NewStar plans to file for the tax refunds in Q3 2018.
Other Terms of the Deal
NewStar's agreements with First Eagle and GSO Capital have a "Go Shop Period", wherein NewStar has the option of soliciting for a better offer from a third party. This go-shop period is valid until November 15, 2017, however, there are no guarantees that this process would end with NewStar receiving a superior proposal. NewStar has clarified that it has no intention of sharing any information on this matter unless its Board of Directors has taken a final decision on any potential superior proposal.
Deal Financing
First Eagle plans to finance the transaction using its cash in hand plus cash on NewStar's balance sheet including balance proceeds from the assets sale to GSO Capital after payment of debts and certain obligations. First Eagle would also be assuming a small amount of NewStar's existing debt.
GSO Capital has received commitment from Wells Fargo Bank, N.A for approximately $1.85 billion through an asset-based revolving credit facility. GSO Capital has also lined up equity commitments of approximately $950 million from investors in the newly formed investment fund which is acquiring NewStar's portfolio of assets.
The transaction has been approved by the Board of Directors of First Eagle and NewStar. The transaction is expected to close in FY17 or FY18 and is subject to regulatory and shareholders' approval and other closing conditions which include certain consents for some of NewStar's existing funds.
Executives' comments
Commenting on the acquisition, Mehdi Mahmud, President and CEO of First Eagle, said:
"NewStar has an excellent reputation, deep industry experience and one of the longest proven track records of lending prudently to middle market companies and managing broadly syndicated loan portfolios. Its investment-centric culture and conservative investment philosophy align well with First Eagle's core investment tenets."
Tim Conway, CEO of NewStar, added:
"The transactions announced today are a culmination of that strategy and deliver compelling value for NewStar's stockholders. The transactions also allow us to transition seamlessly to a larger investment platform, while maintaining continuity for our customers."
Sharing his views on acquiring NewStar's portfolio of assets, Bennett Goodman, Senior MD and Co-Founder of GSO, commented:
"We are pleased to move forward with the acquisition of NewStar's high quality $2.4 billion loan portfolio. We believe this investment represents a very attractive and unique opportunity for GSO and our investment partners that leverages all the strengths of the GSO platform. Through an ongoing relationship with NewStar, we will collaborate closely on their complementary middle market direct lending strategies."
About the Parties to the Deal
First Eagle Investment Management - New York-headquartered First Eagle Investment Management is an independent, privately-owned investment management firm with approximately $116 billion in AUM as on September 30, 2017. The Firm's investment capabilities include equity, fixed income, and multi-asset strategies.
NewStar Financial, Inc. - Boston, Massachusetts based NewStar is a specialized commercial finance Company focused on providing a range of senior secured debt financing options to mid-sized Companies to fund working capital, growth strategies, acquisitions and recapitalizations. The Company had two main divisions: middle market direct lending and asset management. NewStar has an overall $7.3 billion of assets. The Company also has regional offices in Chicago, Norwalk, and New York.
GSO Capital Partners - GSO Capital is the global credit investment platform of The Blackstone Group L.P. (NYSE: BX) and one of the largest alternative managers in the world. It is focused on the leveraged-finance, or non-investment grade related, marketplace and has approximately $95 billion of AUM. GSO Capital seeks to generate attractive risk-adjusted returns in its business by investing in a broad array of strategies including mezzanine debt, distressed investing, leveraged loans, and other special situation strategies.
Last Close Stock Review
At the closing bell, on Wednesday, October 18, 2017, NewStar Financial's stock was slightly up 0.67%, ending the trading session at $12.10. A total volume of 877.55 thousand shares have exchanged hands, which was higher than the 3-month average volume of 101.50 thousand shares. The Company's stock price surged 9.50% in the last three months, 14.58% in the past six months, and 26.30% in the previous twelve months. Moreover, the stock soared 30.81% since the start of the year. The stock is trading at a PE ratio of 22.08 and has a dividend yield of 0.66%. The stock currently has a market cap of $506.39 million.
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