NewStar Financial — Investor Presentation (February 2010)
39 slides from NewStar Financial's investor presentation, Feb 22, 2010
Slide 1: Investor Presentation
Exhibit 99.1 Investor Presentation February 2010
Slide 2: Forward Looking Statements
Forward Looking Statements This presentation contains forward-looking statements. All statements other than statements of historical fact included in this presentation are forward-looking statements, including, without limitation, statements related to any plans to raise additional capital. These st
Slide 3: Agenda
Agenda I. Introduction II. History III. Business Strategy and Credit Thesis IV. Core Strengths and Competitive Advantage V. Performance VI. Value Considerations VII. Opportunity Appendix 2
Slide 4: Introduction
Introduction Emerging from a period of unprecedented challenges Our ability to navigate through this period reflects both the quality of the business plan and the experience of the management team Although credit costs weighed heavily on financial results in 2009, the outlook is improving Believe pr
Slide 5: History
History Formed in June 2004 by a team of senior banking executives Initially capitalized with $210 million from a group of investors led by Corsair Capital and Capital Z Partners Funded lending activities through a combination of equity, warehouse lines from major banks and securitizations (CLOs) La
Slide 6: Business Strategy and Credit Thesis
Business Strategy and Credit Thesis Focus on direct origination of loans with control over due diligence and negotiation of transaction terms Employ experienced, credit-trained bankers Apply disciplined selection criteria for target markets, clients and transactions Enforce a rigorous credit process
Slide 7: Core Strengths and Competitive Advantage
Core Strengths and Competitive Advantage Experienced, cohesive management team Direct origination capabilities and lending franchise Skill and experience of bankers and portfolio managers Credit and risk management capabilities Loan syndication capabilities and asset management platform Funding plat
Slide 8: Performance
Performance Financial Highlights Credit Performance Year EndedDecember 31, 1 ($ in thousands) 2007 2008 2009 Lagging 12-Month Default Rate by Principal Amount Total Assets $2,622,765 $2,571,522 $2,200,072 Loans, Gross 2,402,322 2,409,148 2,036,213 Managed Assets 2,980,594 2,970,389 2,578,717 S&P LST
Slide 9: Value Considerations – Breakdown of Book Value
Value Considerations – Breakdown of Book Value As of 12/31/2010 Parent Company Unencumbered Loans Unrestricted Cash Deferred Tax Asset Other¹ Subtotal and OREO Assets $40 $100 $57 $145 $342 Memo: NPAs -- 84 -- -- 84 Reserves -- -- -- (115) (115) Deferred loan fees -- -- -- (21) (21) Liabilities -- -
Slide 10: Opportunity
Opportunity Unlock balance sheet value Restart growth in an historically attractive lending environment Leverage origination and servicing platforms with core strength in credit management into new markets and asset types Participate in consolidation of CLO and other credit managers Build on current
Slide 11: Opportunity: Expect strong demand for loans from LBO and refinancing activity
Opportunity Expect strong demand for loans from LBO and refinancing activity US Fundraising and LBO Volume With an estimated $400 million of capital available for investment, private equity has purchasing power of nearly $1 trillion assuming 40% equity contributions in new deals NewStar targets buyo
Slide 12: Opportunity: Thinner competitive landscape with reduced lending capacity
Opportunity Thinner competitive landscape with reduced lending capacity Institutional Investors Have Dominated the Market Dramatic decrease in number of loan market investors Institutional Investors Expect loan market to experience imbalance as CLOs lose reinvestment capacity as record amounts of lo
Slide 13: Opportunity: Return expectations in a higher cost of capital and lower leverage market
Opportunity Return expectations in a higher cost of capital and lower leverage market Illustrative Business Model Economics 3 Amount Amount Leverage % 1 Earning Assets $ 100 Debt $ 80 4.00 x 80.0% Equity 20 1.00 x 20.0% $ 100 $ 100 % $ % Interest Income 1 Earning assets / total assets Debt Index (LI
Slide 14: Business Model Economics - Sensitivity to Key Drivers
Opportunity Business Model Economics - Sensitivity to Key Drivers Loan Credit Spread Loan LIBOR ##### 4.00% 4.50% 5.00% 5.50% 6.00% 17.50% 0.25% 0.60% 1.00% 1.50% 2.00% 1.50% 15.3% 17.8% 20.3% 22.8% 25.3% 1.50% 16.6% 18.3% 20.3% 22.8% 25.3% 1.75% 14.3% 16.8% 19.3% 21.8% 24.3% 1.75% 15.6% 17.3% 19.3%
Slide 15: Appendix
Appendix
Slide 16: Overview: Corporate History
Overview Corporate History 7/09: Term Out 11/07: Raised of Wachovia / $121MM in Wells equity Warehouse • 61 employees 12/07: Closed 1/10: Closed NCOF CLO 7/09: Rollout of fourth CL0 • 4,000+ opportunities 11/07: Closed Everest analytics Loan Portfolio ($560MM) ($275 MM) • $2.6 billion assets under m
Slide 17: Overview: Managing through the financial crisis
Overview Managing through the financial crisis Asset Bubble Subprime Crisis Financial Crisis Recession 2005-2006 2007 2008 2009 Macro House values peak Housing bubble bursts Access to capital severely Banking system stabilizes and Environment constrained as markets freeze congress passes economic st
Slide 18: Business Model: Management – Experienced Executive Team
Business Model: Management Experienced Executive Team Years Executive Title Experience Prior Experience Tim Conway Chief Executive Officer 24 Head of Corporate Finance, Capital Markets and Leveraged Finance, Fleet Boston Head of Loan Syndications, Private Placements and Executive Acquisition Finance
Slide 19: Business Model: Management With Experience Working Together
Business Model: Management With Experience Working Together NewStar’s executives have collaborated together at predecessor institutions over the past 20 years 18
Slide 20: Business Model: Origination and Distribution Platform
Business Model: Origination and Distribution Platform Flexible and Scalable Ability to commit substantial capital to customers Hold limits enhance diversification Generates multiple revenue streams Customer $5MM – $100MM Commitment Loans: ~$0.6 billion Loans: ~$2.0 billion Admin Agent: $2 billion of
Slide 21: Business Model: Target Market Focused on the Middle Market
Business Model: Target Market Focused on the Middle Market NewStartargets the market for financing mid-sized companies, which is large and fragmented with no single competitor holding a dominant market share… Middle Market – Non-investment grade companies with $25 – 500 million of revenue – Addressa
Slide 22: Business Model: Credit Product Strategy
Business Model: Credit Product Strategy Middle Market Loan Characteristics Typically floating rate senior secured obligations with liens on all assets (including stock of subsidiaries) Restrictive covenants provide additional protection tied to financial performance and reporting rights among other
Slide 23: Business Model: Direct Origination
Business Model: Direct Origination Uniquely Qualified Bankers Managing Director New York Region • Industry expertise • 20+ Year Commercial Banker • Credit experience • Middle Market Executive 9 Old Kings Hwy South Darien, CT 06820 • Capital markets perspective • Senior Credit Officer 203-716-8411 an
Slide 24: Business Model: Credit Selection
Business Model Credit Selection Credit policies and practices are based on a fundamental approach to credit selection and management… NewStar’s credit process combines a disciplined Credit Selection screening process with a conservative credit approach Key strategy characteristics US Credit Markets
Slide 25: Business Model: Portfolio Strategy
Business Model: Portfolio Strategy Diversification and Focus on Senior Debt Portfolio Strategy $2.0 billion (217 obligors) (1) Highly diversified portfolio by issuer and across industries CRE-Other, $15 , 1% Mfg - Cons. Non Durable, $151 , CRE-Retail, $25 , 1% 7% Specialized teams focused on CRE-Ind
Slide 26: Financial Performance
Financial Performance
Slide 27: Financial Results: Summary of Q4 2009
Financial Results Summary of Q4 2009 Three Months Ended December 31, September 30, December 31, ($ in thousands, except per share amounts) 2009 2009 2008 Net income (loss) $ (13,405) $ (10,262) $ 2,754 After tax adjustments to net income (loss): IPOrelatedcompensation andbenefitsexpense(1) 1,872 915
Slide 28: Financial Results: Q4 2009 Income Statement
Financial Results Q4 2009 Income Statement Three Months Ended December 31, September 30, December 31, ($ in thousands) 2009 2009 2008 Net interest income: Interest income $ 31,943 $ 33,675 $ 45,845 Interest expense 7,553 9,197 21,445 Net interest income 24,390 24,478 24,400 Provision for credit loss
Slide 29: Financial Results: Q4 2009 Balance Sheet
Financial Results Q4 2009 Balance Sheet December 31, September 30, December 31, ($ in thousands) 2009 2009 2008 Assets: Cash and cash equivalents $ 39,848 $ 31,128 $ 50,279 Restricted cash 136,884 109,618 84,163 Investments in debt securities, available-for-sale 4,183 3,859 3,025 Loans held-for-sale
Slide 30: Improving Credit Outlook May Signal Peak in Allowance for Loan Losses
Financial Results Improving Credit Outlook May Signal Peak in Allowance for Loan Losses Allowance for credit losses increased 13.2% to $114.5 million, or 5.68% of loans as of December 31, 2009 compared to $101.1 million or 4.69% of loans as September 30, 2009 Non-accruing loans were $162.7 million a
Slide 31: Funding Model
Funding Model
Slide 32: Business Model: Funding – Wholesale model
Business Model: Funding Wholesale model • Advances used to partially fund new Banks loan origination • Repaid from proceeds of term debt securitizations • Advance rates down to 50% (D/E: 1.0x) from peak of 75-80% (D/E: 3-4.0x) • Cost of funds increased from low of L+60bps to L+250-450bps • Borrowing
Slide 33: Funding Platform Strengthened by Recent Financings
Funding Platform Strengthened by Recent Financings As of 12/31/2009 Protecting the Balance Sheet Cash Position Completed $275 million CLO scheduled to mature on July 30, Unrestricted Cash $ 39.8 2018 Restricted Cash Pledged to Credit Facilities & CLOI 38.2 Repaid all outstanding borrowings under Deu
Slide 34: Management Biographies
Management Biographies a mel IX
Slide 35: Management Biographies
Management Biographies Timothy J. Conway – Chief Executive Officer and Director Timothy J. Conway is our Chief Executive Officer and President and was elected to serve as Chairman of our Board of Directors in September 2006. He has been our Chief Executive Officer and President and has served on our
Slide 36: Management Biographies
Management Biographies John J. Frishkopf – Managing Director, Treasurer and Head of Asset Management John J. Frishkopf has served as a Managing Director and Treasurer/Head of Asset Management since our inception in 2004. From February 1999 to June 2004, he was a Managing Director of Milford Associat
Slide 37: Management Biographies
Management Biographies David R. Dobies – Managing Director, Middle Market David R. Dobies has served as a Managing Director and Co-Head of our Middle Market Corporate group since our inception in 2004. From 1995 to 2004, Mr. Dobies served in various capacities at FleetBoston Financial Corporation or
Slide 38: Board of Directors Biographies
Board of Directors Biographies Richard E. Thornburgh – Vice Chairman of Corsair InvestmentsLLC In February 2006, Mr. Thornburgh joined Corsair Capital LLC as a partner. From 1976 until December 2005, he held several positions at the Credit Suisse Group and its various subsidiaries and predecessor in
Slide 39: Board of Directors Biographies
Board of Directors Biographies Brian L.P. Fallon – Partner of O'Conner Capital Partners Brian L.P. Fallon is a Partner of O'Conner Capital Partners. Prior to joining O'Conner Capital Partners in September of 2007, Mr. Fallon was a Managing Director and Principal of Extell Development Company from 20
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