NewStar FinancialInc. on March 31 announced the sale of its asset-based lending subsidiary,NewStar Business Credit LLC, to SterlingNational Bank for approximately $112 million in cash, net of debt repayment,fees and transaction expenses.
NewStar Business Credit is an independent provider of workingcapital financing solutions to middle market companies throughout the U.S. NewStarFinancial acquired the Dallas-based NewStar Business Credit in late 2010 from AmericanCapital.
The transaction was structured as a sale of NewStar Financial'sownership interests in NewStar Business Credit and generated net proceeds of approximately$117 million, including the retention of excess cash and net proceeds from the sale.The purchase price reflected a premium of approximately 6% of gross loan receivablestotaling approximately $330 million and was approximately 1.27x book value, netof debt prepayment, fees and transaction expenses. NewStar Financial expects torecognize a gain on the sale in the first quarter.
Sterling Bancorpsaid in a separate news release that 100% of the consideration was paid in cash.The purchase price included a premium of 5.9% of gross loans, which is equal to$19.5 million. The transaction is expected to be accretive to EPS in 2016 and 2017,has an estimated internal rate of return exceeding 20%, and a tangible book valueearn-back period within 2.5 years.
Sterling Bancorp said NewStar Business Credit's leadership teamand support staff also joined Sterling's asset-based lending division. Michael Haddad,former president of NewStar Business Credit, will manage Sterling's asset-basedlending business.
The cash proceeds from the transaction add significantly to NewStarFinancial's liquidity position and provide flexibility to pursue other strategicpriorities, including continued share repurchases. The additional liquidity alsoallows the company to reinvest in its higher-margin, core lending and asset managementbusinesses. The company may also use the opportunity from the expected gain on saleto take other discretionary actions intended to optimize the balance sheet, includingan expected disposition of a portion of its commercial real estate loan portfolio.
Locke Lord LLP served as legal counsel to NewStar Financial,while Squire Patton Boggs (US) LLP served as legal counsel to Sterling NationalBank in connection with the transaction.
Sterling National Bank is a wholly owned subsidiary of SterlingBancorp.