By Jennifer Chiou
New York, Nov. 5 – NewStar Financial, Inc. announced that will place up to $300 million of 8.25% subordinated notes due 2024 to funds managed by Franklin Square Capital Partners in a strategic investment that is expected to be completed in multiple closings.
According to a press release, NewStar, GSO Capital Partners, the credit division of Blackstone, and Franklin Square have formed a strategic relationship to help expand NewStar's lower middle-market lending and asset management activities.
The Franklin Square funds have committed to purchase $200 million of the subordinated notes by the end of the year and an additional $100 million of the notes within one year in one or more tranches of no less than $25 million.
The issue will include warrants exercisable for 12 million shares of common stock at an exercise price of $12.62, the release stated. The company’s stock closed at $13.18 (Nasdaq: NEWS) on Wednesday.
The 10-year warrants will be issued and sold in two tranches. The first tranche of warrants will be exercisable for roughly 9.5 million NewStar common shares, which represents 19.9% of the company's outstanding shares. The second tranche will be exercisable for about 2.5 million shares.
The notes include a payment-in-kind feature that allows the company, at its option, to elect to have interest accrued at a rate of 8.75% added to the principal of the notes instead of paying it in cash.
The notes are callable during the first three years with payment of a make-whole premium. The prepayment premium decreases to 103% and 101% after the third and fourth anniversaries of the closing, respectively. They are callable at par after year five.
NewStar is a Boston-based middle-market commercial lender.
| Issuer: | NewStar Financial, Inc.
|
| Issue: | Subordinated notes
|
| Amount: | $300 million (maximum)
|
| Maturity: | 2024
|
| Coupon: | 8.25% in cash or 8.75% in kind
|
| Call option: | With make-whole premium during first three years; prepayment premium of 103% in year three and 101% in year four; at par in year five
|
| Warrants: | For 12 million shares
|
| Warrant expiration: | 10 years
|
| Warrant strike price: | $12.62
|
| Investor: | Franklin Square Capital Partners
|
| Announcement date: | Nov. 5
|
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