NewStar Financial; GSO Capital Partners, the credit division of Blackstone; and Franklin Square Capital Partners announced they have formed a strategic relationship to help expand NewStar’s lower middle market lending and asset management activities.

The relationship includes an investment of long-term capital from funds managed by Franklin Square Capital Partners (which are sub-advised by GSO) to help fund NewStar’s growth strategy and expand the scale of its lower middle market lending activity.

Under the terms of the investment, funds managed by Franklin Square have committed to purchase $300 million of 10-year subordinated notes and warrants exercisable into 12 million shares of common stock at an exercise price of $12.62. 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 facilitate asset growth.

The strategic relationship between the firms is anticipated to contribute materially to NewStar’s growth, while extending GSO and Franklin Square’s access to the lower middle market. It also allows Franklin Square’s funds and GSO to offer their portfolio companies other financing solutions such as equipment leases and asset-based loans.

“This strategic relationship is nothing short of a game changer for NewStar,” said Tim Conway, NewStar’s CEO. “I consider both GSO and Franklin Square to be the absolute ‘best-in-class’ at what they do and we are thrilled to have their backing and Blackstone’s support. With $300 million of long-term capital and a significant equity stake in NewStar, I believe that our goals and objectives are perfectly aligned. Our investment styles and credit culture are very compatible and we are already working together effectively to provide larger capital commitments to our clients and open up new channels of origination through the broader GSO and Franklin Square platforms.”

Credit Suisse is acting as the financial advisor to NewStar on the investment and related strategic considerations and Simpson Thacher and Bartlett LLP is acting as NewStar’s counsel.

To view the full NewStar release, click here.