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New Star renegotiates banking covenants and announces cost cutting plans

New Star has renegotiated its banking covenants and is to embark on a further cost cutting regime after revealing a £3.1bn loss in assets under management in the third quarter this year.

The troubled asset manager has announced that it has come to an agreement with its bank syndicate to amend its financial covenants in response to the “unsettled trading environment.”

The amendment has immediate effect and will see interest rates on the firm’s debt increase by 1.5 per cent, with New Star retaining the option to pay the debt as a single payment in June 2013.

The firm has also said that despite reports it has never been in breach of these banking covenants.

New Star also intends to embark on a business restructure, after the firm revealed that assets under management had fallen 15.6 per cent to £16.7bn in the third quarter of 2008.

New Star says that the fall is mainly off the back of a drop in asset prices, which account for £1.8bn of the fall. Net outflows stand at £523m, £316m of which are from mutual funds.

New Star says that assets have fallen as low as approximately £14.3bn as of yesterday’s date.

The restructure is expected to provide annual savings of £20m compared to costs in 2008. Once surplus premises have been sub-let the group expects over half the savings to have been accounted for.

In the third quarter alone UK mutual funds fell by 15 per cent to £7.9bn, a loss of £1.4bn, while institutional assets fell from £7.5bn to £6.1bn, a 19 per cent fall.

New Star chairman John Duffield says: “The fall in markets since the summer and increased redemptions across the asset management sector have had a significant impact on our business. Our banks understand our position and are supportive. We are taking further action to cut our costs significantly.

“We were one of the first companies to warn investors about the impact of the credit crunch on our sector and we currently believe the exceptional risk aversion among investors may persist for some time, posing further challenges for fund management companies over the short term.

“The longer-term prospects for asset managers remain intact, however, as a result of the secular trends towards increased savings and investment flows in both the developed and the emerging markets. Such flows are likely to be redeployed in the financial markets, possibly after a time lag, in response to the coordinated interest rate cuts by the world’s central banks and government moves to rebuild the solvency and liquidity of financial institutions.”


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