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NewStar Sells Asset-Based Lending Business to Sterling National Bank

April 01, 2016, 07:54 AM
Filed Under: Mergers & Acquisitions

NewStar Financial Inc. announced the sale of its asset-based lending subsidiary, NewStar Business Credit LLC (“NSBC”),  to Sterling National Bank, a wholly owned subsidiary of Sterling Bancorp for approximately $112 million in cash, net of debt repayment, fees and transaction expenses.

NSBC is a leading, independent provider of flexible, working capital financing solutions to middle-market companies nationwide. NewStar acquired the Dallas-based company in late 2010 from American Capital and expanded it significantly over the last five years under the leadership of industry veteran, Michael Haddad.

The transaction was structured as a sale of NewStar’s ownership interests in NSBC and generated net proceeds to NewStar of approximately $117 million, which included the retention of excess cash and net proceeds from the sale.   The purchase price reflected a premium of approximately 6% of gross loan receivables totaling approximately $330 million and was approximately 1.27x book value, net of debt prepayment, fees and transaction expenses.  NewStar expects to recognize a gain on the sale in the first quarter of 2016.

The sale of the asset-based lending platform demonstrates a continuation of the Company’s transformation from a bank-styled, diversified commercial finance company into a more specialized middle market direct lender with a focus on managing assets for institutional investors.  It also reflects a strategic decision to exit businesses with economic models increasingly challenged by competition from banks and other lenders with access to lower cost funding.  The cash proceeds from the transaction add significantly to the Company’s liquidity position and enhance its flexibility to pursue other strategic priorities, including continued share repurchases.  The additional liquidity also allows the Company to re-invest in its higher-margin, core lending and asset management businesses, which the Company believes are positioned to capitalize on favorable market trends, including a reduction in banks’ leveraged lending activity and growing interest among institutional investors in middle market private debt.  The Company may also use the opportunity from the expected gain on sale to take other discretionary actions intended to optimize the balance sheet, including an expected disposition of a portion of its commercial real estate loan portfolio.

NewStar’s CEO Tim Conway commented: “I believe this transaction is a positive for all parties involved.  The ABL platform is a great fit with Sterling’s specialty finance strategy and being part of a bank should provide a significant competitive advantage that will allow the team and the business to achieve their true potential.  For NewStar, this transaction generates an attractive financial return and demonstrates the intrinsic value of our direct lending platforms that we believe is not fully recognized in our current share price.  The timing of the transaction is also favorable.  Given a more challenging operating environment and recent market volatility, I believe that it is a good time to be liquid.    And, despite a slow market and weak loan demand, which dampened our first quarter lending volume, I expect that we will be able to capitalize on attractive opportunities to re-invest the transaction proceeds.   Importantly, the additional liquidity also gives us the flexibility to take other steps to enhance shareholder value.”

"Delivering excellent service and financing flexibility to our clients has always been our primary goal," stated Thomas X. Geisel, President, Specialty Finance at Sterling National Bank. "This business expands the strength of our specialty finance offerings and creates further opportunities to serve asset-based borrowers nationally."

Michael Haddad, President of NSBC, said, "It gives us great confidence, after building this business, to know that Sterling will continue to provide our clients with the level of service they have come to expect, as well as the balance sheet strength and additional products that Sterling offers as a national bank. I am excited to join Sterling's impressive team."

Locke Lord LLP served as legal counsel to NewStar in connection with the transaction.

See also: Sterling Bancorp Acquires NewStar Business Credit, LLC for the press release issued by Sterling.

Sterling Bancorp, of which the principal subsidiary is Sterling National Bank, specializes in the delivery of service and solutions to business owners, their families, and consumers within the communities we serve through teams of dedicated and experienced relationship managers. Sterling National Bank offers a complete line of commercial, business, and consumer banking products and services.

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