New Star chairman John Duffield says the existing share-based bonus scheme will be replaced by a new scheme to ensure key people are locked in.
The new incentive scheme will give senior management ordinary shares representing 5 per cent of share capital, while certain employees will be granted a total of £6m of preference shares.
The restructure will see £240m of the company’s gross debts of £260m being converted into equity.
The syndicate of banks backing the restructure are HBOS, Lloyds TSB, HSBC, Royal Bank of Scotland and National Australia Bank, but the proposal must be approved by shareholders.
The restructure follows concerns raised by New Star’s clients over the level of its debts in the face of what may be a prolonged downturn.
The firm’s international property fund was recently temporarily suspended and market decline has led to a drop in assets under management to £13.9bn at the end of November.
New Star says that the public scrutiny that comes with being a listed company has exacerbated its problems.
Duffield says: “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
He adds: “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.”
Chelsea Financial Services managing director Darius McDermott says: “The one thing we wanted to see was a stable New Star and this deal looks like it will bring that stability.
“Anything else would have been a disaster, if it had gone into administration the fund managers would not have stayed, this is the best option.
“The only people losing out here are the shareholders. For fund holders this is extremely welcome news.”
McDermott says the incentive package should prevent managers fleeing the
“I would think the incentive package will be enough to keep the star
managers. It is a tough climate out there. Fund managers are being culled, there are mass redundancies being made across the City.”