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NewStar Financial is a commercial finance company that provides customized debt financing solutions to middle-market businesses, mid-sized specialty finance companies, issuers of asset-backed and commercial mortgage-backed securities, and commercial real estate borrowers.

Majority of the loan portfolio comprises of corporate loan accounting for 73%. Structured products category comes next with 15% that makes investments in asset-backed securities and mortgage backed securities including some sub-prime residential mortgage exposure with the rest going to commercial real estate.

Disciplined credit culture with rigorous underwriting practices and intensive due diligence has helped it maintain good asset quality. Endorsing the same the corporate loan portfolio is performing well with only one delinquent loan. Though the reduction in sub prime exposure to less than 2% from levels of 5%-7% resulted in high yield being forgone but has also helped to reduce the risk profile.

Huge prospects are seen in the under served middle market corporate lending group despite increasing competition and tightening spreads with a market of approximately $30 billion in 2006 according to an estimate by Standard and Poors. The company targets companies with EBITDA between $5 million and $50 million for direct origination. Of this majority are sponsored by private equity firms and good relationships with them are needed. Reflecting the same it has had early success building an origination platform of national scope leveraging the management relationship with leading financial institutions.

Recent growth in commercial real estate and refinance activities along with leveraged buyout financing are other bright spots to cash on. NewStar Credit Opportunities Fund (NCOF) with equity funding from Och-Ziff and Caisse Depot seems to a good strategy that helps to undertake larger underwritings without reducing its overall portfolio diversification. Apart from the ability to fund bigger deals NCOF provides a steady stream of management fees also and is all set to beat the market.