NewStar FY/16 Earnings Up on Sale of ABL, Equipment Finance Assets

NewStar reported 2016 net income of $28.2 million was up from $16.9 million a year earlier aided by $29.2 million in gains on the sale of a divested business and assets. NewStar said total revenue for the full year increased by $44.5 million, or 44.9%, to $143.6 million compared to $99.1 million in 2015 due primarily to gains recognized on the sales of the asset-based lending and equipment finance businesses, as well as a significant increase in asset management fee revenue and favorable mark-to-market adjustments.

The following highlights were excerpted from the news release:

  • Sold equipment finance platform and related assets for $105 million in cash, or approximately 1.2x allocated book value, net of debt repayment, transactions fees and other retained liabilities.  The transaction generated a gain of approximately $6.7 million in Q4/16.
  • New funded credit investments totaled $671 million in the fourth quarter and $1.9 billion for the full year, compared to $427 million last quarter and $3 billion for the full year in 2015.
  • Net charge-offs for the year were $33.0 million compared to $3.4 million for 2015 as several long-term work-outs were resolved and charge-offs were applied against previously established reserves.
  • Average yields on new middle market loans and other directly originated credit investments in the fourth quarter were 6.65%, consistent with the prior quarter.  Average yields for the full year were 6.91% compared to 6.54% in 2015.

Tim Conway, NewStar’s chairman and chief executive officer, commented on the company’s performance: “We made significant progress on our key priorities in 2016 as we took important steps to streamline operations, reduce costs and reposition NewStar as a credit-oriented asset manager, while also returning a meaningful amount of capital to our shareholders. We sold two non-core businesses at substantial premiums, increasing our liquidity and financial flexibility. We reduced baseline expenses by 33% on a run-rate basis as of the fourth quarter, improving profitability.  And, we continued to expand our asset management activities with the launch of two new credit funds and a separate account with target investment portfolios of approximately $1 billion. More than 53% of our credit investments are now held in managed funds and we doubled our management fee income in 2016.”

“Our financial results reflected the progress we are making as pre-tax returns on equity exceeded 11% in the quarter. Revenue was up nearly 12% over last quarter and 46% from the same quarter last year. Credit costs remained within expected ranges. Loan demand from M&A activity rebounded and our investment pace returned to expected levels. Importantly, we returned $43 million, or 6.5% of our average equity capital, to investors in 2016 and recently declared our first quarterly dividend. The board’s decision to adopt a quarterly dividend policy was intended to provide more balance to our capital management strategy, reflecting our commitment to improve the investment value of our stock.”

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