Fifth Street sells CLO business to Newstar Financial

Fifth Street Asset Management, which is up for sale, is selling its middle-market CLO business to NewStar Financial.

NewStar is expected to pay about $16 million, net of $13 million of assumed indebtedness, for Fifth Street CLO Management LLC.

The deal is seen closing in the third quarter. Fifth Street, a specialty lender, plans to use proceeds to pay down its credit facility and for general corporate purposes.

FSCM manages two CLOs with about $726 million in assets under management.

Newstar is a lower-middle-market lender. The Boston firm had $6.6 billion in assets before its buy of FSCM, said Robert Brown, a NewStar managing director. “We’re one of the top two issuers of middle- market CLOs,” Brown said.

Leonard Tannenbaum, Fifth Street’s CEO, said in a statement that the current market environment, along with headwinds the firm has faced over the past year and a half, has made it difficult to scale the CLO business.

Fifth Street shares have dropped about 47 percent since hitting a high of $8.45 in January. The stock on Friday was trading at $4.50.

“We believe that exiting this business line is in the best interest of our shareholders and is an important step as we continue to enhance our liquidity position and streamline operations,” he said.

Tannenbaum owns 51.6 percent of the lender’s Class A shares, 93.78 percent of the Class B shares, and 90.27 percent of the combined voting power, according to an April SEC filing.

News of the transaction comes as Fifth Street Asset management is expected to be sold to Oaktree Capital. Fifth Street, Greenwich, Connecticut, is a credit-focused asset manager that lends to small and midsized businesses. Fifth Street has more than $4 billion in asset under management, mainly through two publicly traded business-development companies.

Fifth Street was up for sale in 2016 but was unable to come to terms with bidders, the Wall Street Journal reported in April. Earlier this year, Fifth Street hired Morgan Stanley to sound out potential buyers, the story said. Last week, the WSJ said Oaktree was near a buy of Fifth Street for about $350 million.

Oaktree declined comment.

Action Item: Email Fifth Street CEO Tannenbaum at len@fifthstreetcap.com

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