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Correction: NewStar Financial Lays Off 14

See Below for Correction.

NewStar Financial has laid off 14 of its employees, bringing the struggling lender’s headcount to 66 from 80, Managing Director Robert Brown told peHUB. A result of the shriveling M&A market, this round follows the layoff of 15 professionals in February.

NewStar is a Boston-based C-Corp. that lends to middle-market companies, typically in support of leveraged buyouts. The drop-off in deal value combined with the difficulty accessing long term capital has led to serious problems for a number of middle market lenders this year.

NewStar’s first round of layoffs happened in tandum with many of its peers. In February, NewStar, Orix Corporation, National City, Madison Capital, Churchill Financial and Freeport Financial all trimmed headcount. The majority of cuts came from origination teams, which had less work to do when M&A dried up. Industry sources said NewStar did not cut deep enough at the time and carried too much overhead to sustain its model.

Yesterday’s cuts included some professionals from its origination team, a group that now includes 16 people, Brown said. “Origination and credit is a blurred thing these days, with everyone doing everything.”

By eliminating deal origination professionals, lenders have essentially transformed themselves from debt arrangers to asset managers, meaning they rely on slower-growth fee-based income. Earlier this year, NewStar agreed to purchase Southern Commerce Bank in a play to become a more-stable bank holding company. That deal was terminated in August when regulators indicated the newly formed entity would not be permitted to make leveraged loans from the bank’s balance sheet.

Brown said NewStar has been active as an originator still, participating in eight new deals thus far in 2009. Those deals include ABRY Partners’ buyout of Grande Communications, Friedman Fleischer & Lowe’s buyout of Church’s Chicken, and Spectrum Equity Investors and Bain Capital Ventures’ investment in Surveymonkey.com.

Previously:

What’s Next for Churchill and Peers?

Update: This post was corrected to show that NewStar Financial has laid off 15 of its employees. A previous version said it had laid off 29 employees. To further clarify, a previous version incorrectly reported that the firm had made cuts from its media team and eliminated its healthcare team, which NewStar’s Brown said was not the case. Lastly, the company is C-corp. and not a business development corp.