Inevitable really. Existing shareholders are largely wiped out. New Star’s lowlights:
- Some £240m of £260m gross debt is being converted into equity; NSAM currently has £30m of cash
- Bank syndicate – HBOS, Lloyds, RBS, HSBC and NAB – will own 75 per cent of the restructured business, along with £94m of £100m of new convertible redeemable preference shares.
- Company will be delisted
There is delayed pain on the pref front – but pain, nevertheless:
The Preference Shares will entitle the holders to an annual dividend of 10 per cent. above LIBOR which will start accruing 6 months following issue. This dividend will not be payable until 30 June 2013. The Preference Shares, together with the accrued dividend entitlement, must be redeemed on 30 June 2013 (or, if earlier, out of the net proceeds of any disposal) save that on 30 June 2013 New Star may elect to convert the outstanding Preference Shares into ordinary shares representing, together with the ordinary shares held by the Banks, 95% (or such lower percentage as may apply taking into account earlier redemptions of Preference Shares) of the fully diluted enlarged share capital of New Star following conversion (excluding any shares in issue pursuant to the exercise of the warrants described below). Whilst the Preference Shares are in issue, no dividends will be paid on the ordinary shares without all accrued dividends on the Preference Shares having first been paid and without the consent of the holders of the Preference Shares.
Management and employees will get options/warrants over £6m of prefs and 5 per cent of the equity.
Says the chairman, John Duffield:
The Board recognised the concerns of our clients regarding the level of our debt during these difficult times. We have therefore taken this radical step to address these concerns completely and with one stroke.
We are now free to focus all our attention on improving our investment performance. Our existing share-based bonus scheme will be replaced by a new scheme to ensure that our key people are locked in.
The cost of this restructuring is regrettably a substantial dilution for ordinary shareholders, including me. However in current market conditions, we have to recognise that there is no other option to ensure the stability of the business.
Related links:
New Star agrees £340m debt-for-equity swap with banks – FT