New Star accepts tougher debt terms as assets sink

LONDON, Nov 14 (Thomson IM) – British fund manager New Star Asset Management Group Plc. on Friday said it has accepted tougher terms on its bank debt amid accelerating outflows and volatile markets.

The rate of interest on New Star’s debt has increased by 1.5 percentage points. The debt remains repayable in a single payment in June 2013.

New Star shares rose sharply after the announcement which came after market speculation the firm was close to breaching its debt arrangements with banks.

At 0819 GMT, shares in New Star were up 12.5 percent at 30.3 pence. The FTSE 100 was up 3.39 percent.

Citi analysts kept a hold rating on the stock, with a bleak outlook countering encouraging news on debt financing.

‘Our banks understand our position and are supportive,’ said Chairman John Duffield. ‘We are taking further action to cut our costs significantly.’

‘We currently believe the exceptional risk aversion among investors may persist for some time,’ Duffield said.

New Star said it had never been in breach of its banking covenants.


Assets under management at the firm have fallen to 14.8 billion pounds ($22.07 billion) from 19.8 billion pounds since the end of June as outflows have accelerated.

They fell to 16.7 billion pounds during the third quarter after net outflows of 1 billion pounds and market losses of 2.1 billion pounds. Net outflows since end-September were 523 million pounds.

The firm said it had identified total cost savings for 2008 of 20 million pounds half of which will come from sub-letting of surplus offices.

UK fund managers have suffered as a result of the financial crisis. Henderson Global Investors, F&C, and Schroders all reported outflows in the past month as investors have fled to safety. Retail investors in particular have taken flight amid increasing market volatility.

New Star, for whom retail clients represent the majority of funds under management, has been particularly negatively affected due to its exposure to property and financials.

(Reporting by James Molony; Editing by David Cowell) ($1=.6706 Pound) Keywords: NEWSTAR