NewStar reported 2016 net income of $28.2 million was up from $16.9 million a year earlier aided by $29.2 million in gains on the sale of a divested business and assets. NewStar said total revenue for the full year increased by $44.5 million, or 44.9%, to $143.6 million compared to $99.1 million in 2015 due primarily to gains recognized on the sales of the asset-based lending and equipment finance businesses, as well as a significant increase in asset management fee revenue and favorable mark-to-market adjustments.

The following are highlights of the report:

  • Sold equipment finance platform and related assets for $105 million in cash, or approximately 1.2x allocated book value, net of debt repayment, transactions fees and other retained liabilities. The transaction generated a gain of approximately $6.7 million in Q4/16.
  • New funded credit investments totaled $671 million in the fourth quarter and $1.9 billion for the full year, compared to $427 million last quarter and $3 billion for the full year in 2015.
  • Net charge-offs for the year were $33 million compared to $3.4 million for 2015 as several long-term work-outs were resolved and charge-offs were applied against previously established reserves.
  • Average yields on new middle market loans and other directly originated credit investments in the fourth quarter were 6.65%, consistent with the prior quarter. Average yields for the full year were 6.91% compared to 6.54% in 2015.

Tim Conway, NewStar’s chairman and chief executive officer, commented, “We made significant progress on our key priorities in 2016 as we took important steps to streamline operations, reduce costs and reposition NewStar as a credit-oriented asset manager, while also returning a meaningful amount of capital to our shareholders. We sold two non-core businesses at substantial premiums, increasing our liquidity and financial flexibility. We reduced baseline expenses by 33% on a run-rate basis as of the fourth quarter, improving profitability. And, we continued to expand our asset management activities with the launch of two new credit funds and a separate account with target investment portfolios of approximately $1 billion. More than 53% of our credit investments are now held in managed funds and we doubled our management fee income in 2016.”

“Our financial results reflected the progress we are making as pre-tax returns on equity exceeded 11% in the quarter. Revenue was up nearly 12% over last quarter and 46% from the same quarter last year. Credit costs remained within expected ranges. Loan demand from M&A activity rebounded and our investment pace returned to expected levels. Importantly, we returned $43 million, or 6.5% of our average equity capital, to investors in 2016 and recently declared our first quarterly dividend. The board’s decision to adopt a quarterly dividend policy was intended to provide more balance to our capital management strategy, reflecting our commitment to improve the investment value of our stock.”