NewStar Financial has acquired CORE Business Credit, the asset-based lending business of CORE Financial Holdings, for about $25 million cash or roughly $22 net of acquired cash. CORE Financial is a portfolio company of American Capital Strategies, a publicly traded PE firm based in Bethesda, MD. NewStar is a Boston commercial finance company.
NewStar Financial Inc. (Nasdaq: NEWS) announced today that it has acquired CORE Business Credit LLC (“CORE”), the asset-based lending business of CORE Financial Holdings LLC, a portfolio company of American Capital Strategies. The purchase price was approximately $25 million in cash, or approximately $22 million net of acquired cash. The transaction was structured as a purchase of the membership interests of CORE and will be treated as an asset purchase for tax purposes. The sale proceeds were used to repay $20 million of subordinated debt plus accrued interest and prepayment penalties and acquire the membership interests.
As a result of the purchase, NewStar has acquired a portfolio comprised principally of revolving asset-based loans with credit commitments totaling approximately $164 million and outstanding balances of approximately $73 million as of closing. NewStar will also retain CORE’s origination, underwriting, account management and operations staff to manage and grow the asset-based loan portfolio.
CORE provides asset-based loans to middle market companies nationwide. Asset-based loans are typically structured as revolving lines of credit to fund working capital needs and term loans to fund permanent working capital and long-term assets for businesses operating across a wide range of industries. Advances under the credit facilities are generally governed by a borrowing base that defines eligibility criteria and advance rates for different classes of working capital assets. Lending arrangements also typically include strict controls and reporting requirements, including dominion over borrowers’ cash and discretion to amend eligibility and advance rates based on the results of regular field audits and inventory appraisals.
The business will serve as a foundation for NewStar to provide asset-based lending services to small and medium sized businesses on a national basis. The company will operate as NewStar Business Credit after a transition period and will remain headquartered in Dallas, Texas.
NewStar Business Credit will be led by Michael Haddad, CORE’s current CEO and a seasoned executive in the middle-market asset-based lending industry, who has founded and built several successful asset-based lending businesses during his career. Prior to CORE, he co-founded Marquette Business Credit and served as Executive Vice President.
“This acquisition is consistent with our strategy of building our franchise with specialized lending platforms that add to our value proposition for customers and leverage our core strengths in direct origination and credit management. This transaction also provides an attractive way to diversify our business mix and funding platform,” said NewStar’s Chairman and Chief Executive Officer Tim Conway. “The team at CORE Business Credit is among the best in the industry. They have an outstanding track record and will help reinforce our national origination franchise.”
“The transaction is expected to be accretive to earnings,” added John Bray, NewStar’s Chief Financial Officer. “We were able to complete thorough due diligence and re-underwrote each loan. The terms of the transaction were attractive to us with economic benefits expected to be derived from a combination of attractive asset yields, cost synergies and accretion of the purchase discount. As a result, we expect CORE to generate solid after-tax returns on equity in 2011. ”
“We are enthusiastic about the opportunity to add our established asset-based lending platform to NewStar’s national lending franchise,” said Michael Haddad. “Credit availability continues to be a hurdle for small and mid-sized companies. As a NewStar Financial company, we can provide more businesses with the capital they need and add to NewStar’s origination and product capabilities across the country.”
About NewStar Financial, Inc.:
NewStar Financial (Nasdaq:NEWS) is a specialized commercial finance company focused on meeting the complex financing needs of companies and private investors in the middle markets. The Company specializes in providing senior secured debt financing for the acquisition or recapitalization of mid-sized companies and commercial real estate. NewStar originates loans directly through a team of experienced, senior bankers organized around key industry and market segments. The Company targets ‘hold’ positions of up to $20 million and selectively underwrites or arranges larger transactions for syndication to other lenders. NewStar is headquartered in Boston MA and has regional offices in Darien CT and Chicago IL.
This press release contains forward-looking statements, including statements regarding NewStar’s expected return and planned growth for the asset-based lending business. These forward-looking statements involve a number of risks and uncertainties. Among the important factors that could cause actual results to differ materially from those results indicated in the forward-looking statements include uncertainties relating to future events that could affect CORE’s credit performance and level of earning assets.