NewStar hit hard by the credit crunch - Tampa Bay Business Journal:

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NewStar (Nasdaq: NEWS), a lenderr and debt syndicator that brands itself as a specialtyfinance company, is taking a beating on Wall Streetf over its exposure to commercial real estatee and midsize companies acquired in leveragedx buyouts. Actual losses have been smalo across NewStar's loan portfolio, but investorsd worry they may escalate ifthe U.S. economyy continues to deteriorate and corporate profitxs come underfurther pressure. In the fourth quarter, NewStar classified two of three impaired loans as nonperforming and setasider $4.6 million to reflect potential losses. The allowance for credit losses at the end of 2007was $35.65 million, or 1.56 percen t of loans, compared with $20.
6 million, or 1.4 percen t of loans, at the end of 2006. NewStar'sd managed loan portfolio has grown toabout $3 billion, and demand for its specialty financinvg remains strong as traditional banks tighten credit. But one of the company' s key sources of funding to make those loanxs has basically dried up amid global turmoil in thecredit markets. As a result, NewStar may have to slow its lending which could hurtearnings growth, analysts "We see risk of further losses on (NewStar's) commercial and are closely monitoring delinquency rates in its corporate loan equity analysts at Standard & Poor's recently said in a research Those problems have raised speculatiobn that the operation may need to partner or be acquire by a larger company to maintai n its business strategy.
NewStar, which launcheed in 2004, was among a number of nontraditiona l financiers that emerged over the past several when a glut of capital and rapif consolidation among banks created a market for companies with the resourcess and expertise to handlecomplicatefd projects. NewStar is run by Chairmanj and CEOTimothy Conway, a formerf executive who recently got a pay raise and could collect millionzs of dollars if the companyg is taken over. Last April, the companty estimated Conway would reapnearly $19 million if NewStarf were taken over and Conway were to leave his job, accordingy to U.S. regulatory filings.
Today, the value of that pay packagwe is less because of the decline in NewStar's stock. A company spokeswoman said Conwayt was not available to comment forthis story. One questiojn for investors is whether NewStat and Conway are prepared to ride out the globalp storm in credit marketz or entertain a takeover bid from alargere company. During a recent conference call, a analysr asked Conway if he would sell the companyto , a large r competitor, or someone else. Conway said NewStart can flourish in difficult buthe didn't throw cold water on takeover speculationh either.
"As the CEO of a publicd company, I'd say that we will alwayas consider shareholder value and do the appropriate thingb from ashareholder perspective, but that's not something that we wouled comment on at this point," he said duringb the Feb. 20 conference call. Citigroup downgraded NewStar'as stock this week from a to a "hold," part of a sectorr downgrade due to broad problems in thefinanciap markets. NewStar recorded an $8.6 million net loss in compared with a net lossof $27.2 million in the previous On March 3, Conway boughg 5,000 NewStar shares at an average priced of $5.59 apiece, accordintg to U.S. regulatory filings.
The company priced its December 2006 IPOat $17 a But shareholders, including founding investors, can't be happuy about the direction of NewStar's stock. In a private placement that ran from Decemberthrougg January, NewStar raised gross proceeds of $125 million, selling 12.5 milliojn shares. Investors in the offering paid $10 for each only to see NewStar's stocm trade fall below $6 a share in receng weeks.
Investors in the private placement includecd founding shareholdersCorsair Capital, Union Squarer Partners and Och-Ziff Capital Management, as well as outsidwe investors and