NewStar Closes Relationship with GSO Capital, Franklin Square

NewStar Financial, GSO Capital Partners, the credit division of the Blackstone Group, and Franklin Square Capital Partners, the largest manager of business development companies, announced they have completed the initial closing of an investment of long-term capital as part of a broader strategic relationship to help expand the company’s lower middle market lending and asset management activities.

NewStar previously announced that it had entered into an investment agreement with FS Investment Corporation, FS Investment Corporation II, and FS Investment Corporation III to issue $300 million of 8.25% subordinated notes due 2024 and warrants exercisable into 12 million shares of common stock at an exercise price of $12.62. In an initial closing on December 4, 2014, the Franklin Square Funds purchased $200 million of 10-year subordinated notes and the first tranche of warrants exercisable for 9.5 million shares of NewStar common stock at an exercise price of $12.62, which reflected a premium to the company’s prior day closing stock price of $10.88. The Franklin Square Funds have also committed to purchase an additional $100 million of subordinated notes within one year of the initial purchase in one or more tranches of not less than $25 million each as requested by the company. A second tranche of warrants exercisable for 2.5 million shares of NewStar common stock is subject to stockholder approval and is scheduled to close following a special stockholders’ meeting at which the company will request such approval. The company has entered into separate voting agreements with certain stockholders, which include management, in which they have committed to vote their shares in favor of the issuance of the second tranche of warrants.

NewStar expects to use the proceeds from the transaction to enhance its ability to originate and lead transactions across all of its business lines and, as a result, significantly increase origination volume and asset growth. The strategic relationship between the firms is already contributing materially to NewStar’s growth, while extending GSO and Franklin Square’s access to the lower middle market.

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