NewStar Financial issues $496m CLO

  The firm, which regularly issues CLOs to recycle capital into further lending, up-sized the deal to meet investor appetite.

NewStar Financial, a Boston-based mid-market lender, has issued a new $496 million rated collateralised loan obligation (CLO). The securitisation, NewStar’s eleventh, repackages mid-market loans originated by the firm to allow it to recycle capital back into lending.

The deal attracted support from both US and foreign investors and was increased by $96 million on the back of demand, NewStar said.

The CLO was structured with five different floating rate note classes priced at par and with ratings from Moody’s ranging from ‘Aaa’ to ‘Baa3’. NewStar retains the $86 million equity slice which made up 17 percent of the capital structure to bring the issue into compliance with European risk retention rules.

A number of institutional investors participated in the deal, said a spokesperson for the firm, adding that GSO Capital Partners and Franklin Square Investments, which have invested in the company previously, were not among the buyers of the notes.

“This CLO represents our eleventh to date and our fourth deal in less than 12 months. Our track record of issuance in this market demonstrates the value investors place in the NewStar middle market franchise. The broad interest among investors and the quality of the execution also reflects our continued access to the capital markets and ability to expand and diversify our investor base,” said NewStar CEO, Tim Conway.

The CLO has a 4.1 year reinvestment period. Wells Fargo acted as placement agent and sole bookrunner. The structure included a small step-up tranche, rated ‘Aaa/AAA’ to meet demand from certain investors, the firm said. Initial weighted average yield on the notes was 240bps over Libor.

In November, GSO and Franklin Square bought $300 million of 10-year subordinated convertible bonds issued by NewStar for the purpose of increasing capital available for lending. The PIK-toggle notes carry a cash coupon of 8.25 percent and include warrants exercisable into 12 million common stock shares at a price of $12.62.

The investment was designed to provide both sides with cross-referral and co-lending opportunities. GSO and Franklin Square, separately, could also invest more capital into future debt funds managed by NewStar, the firms said at the time.

NewStar specialises in providing senior secured debt to mid-sized companies, lending up to $50 million on a hold basis. As well as Boston, the firm has offices in Atlanta, Chicago, Dallas, Darien, New York, Portland and San Francisco.