NewStar Financial, a new finance company operating in the corporate middle-market, real estate lending and asset-backed securities markets, is gearing up for a hiring and lending spree after raising $660 million in capital and closing on its first loan deal.
The Boston-based finance company was founded by Tim Conway, formerly head of loan syndications, high-yield bonds, asset-backed securities, acquisition finance and merger advisory at FleetBoston, and Peter Schmidt-Fellner, ex-co-head of the high-yield group at J.P. Morgan. The specialty finance company was initially going to be called Novus and has received equity funding from Capital Z Financial Services Fund II (LMW, 3/5) and J.P. Morgan Corsair II Capital Partners.
NewStar is a direct originator and is not looking to primarily buy deals from intermediaries, but will have a direct calling effort, explained Conway. "In some cases we'll be the lead. In many cases, we'll be the co-lead with someone else, partnering with a bank or another financial institution, who is working directly with the customer as well." NewStar will originate both senior debt--term loans and revolvers--and subordinated debt--second liens and mezzanine. Conway said this differentiates NewStar from other players in the market. "Most investors in the loan market tend to focus on one part of the debt solution as opposed to integrated solutions," he noted.
NewStar has brought on board former FleetBoston Managing Directors Dave Dobies and Tim Shoyer to head up the middle-market area. Bob Clemmens, previously head of risk for Barclays Capital Americas, and Bill Mallon, formerly an executive credit officer for FleetBoston, are the chief credit officers. The Boston-based lender currently has 30 professionals but is looking to grow to 75 people across the three business lines over the next two years.
Cap Z and J.P. Morgan have provided $210 million of equity and Wachovia Capital Markets and CDC IXIS Capital Markets are providing $450 million of debt financing. The debt financing is warehouse debt that gives the firm some ability to borrow capital as NewStar makes more loans, Conway said. NewStar is an operating company and is not structured as a collateralized debt obligation. "It's a finance company that, unlike a CDO, we've raised the capital for the next couple of years of operation," Conway said. "We may issue CLOs from time-to-time as a form of debt financing, but it's not the structure of the business."