New Star Asset Management, the group that became famous for making its secretaries millionaires when it listed, has renegotiated the terms of its loans and is preparing to slash £20m of costs, as it blamed the economic crisis for a disappointing quarterly performance.
In a trading update yesterday, New Star, which has seen its share price fall by more than 90 per cent in the last 12 months, said that assets under management had fallen from £19.8bn at the end of June to £16.7bn on 30 September, as asset prices, particularly shares, have plummeted in recent weeks. The group further warned that conditions were not improving and that another £2.4bn of funds had been lost since the end of September.
New Star also revealed that it has renegotiated the covenants on its £236m of syndicated loans, which will result in New Star's interest payments increasing by 1.5 per cent until 2013, when the debt is repayable.
A spokesman for the company said that the move was sensible given market conditions. He added that the company was in no danger of breaching the original loan covenants, and that the new agreement gave it greater headroom.
Sarah Spikes, an analyst at Arden Partners, argued that the extra interest charges would be problematic: "The 150bp will mean that it will have to pay an extra £4m a year in interest. Everyone is going to be looking at earnings, but with assets under management falling faster than expected, the 2008 profit before tax figure should be something like £37.7m, so £4m is not an insignificant cost." Ms Spikes also said that she would not rule out the need for an emergency rights issue.
New Star's spokesman argued that the extra interest charges would in fact total £3.5m.
To combat the recession, the group will be cutting £20m of costs, with more than half coming from property and other non-personal savings. However, between 50 and 60 staff members are set to be axed from an overall total of 380 employees.Reuse content