Fitch Ratings has affirmed NewStar Financial, Inc.'s (NewStar) long- and short-term Issuer Default Ratings (IDRs) at 'BB-' and 'B', respectively, as well as the senior unsecured debt at 'BB-' and subordinated debt ratings at 'B'.

The rating affirmations and Stable Outlook reflect NewStar's established business as a direct middle-market lender, the well-diversified portfolio of senior secured loans, demonstrated track record of underwriting middle-market credit, a modest but growing asset management platform, improved funding profile and experienced management team.

The ratings also reflect benefits from NewStar's strategic partnership with GSO Capital Partners (GSO), a subsidiary of The Blackstone Group L.P. (long-term IDR 'A+'/Outlook Stable) and Franklin Square Capital Partners (Franklin Square; FSIC I long-term IDR 'BBB-'/Outlook Stable). Fitch believes the partnership enhances the company's overall franchise, improves deal flow and sponsor relationships, and supports NewStar's growth aspirations.

The ratings are constrained by NewStar's concentrated business model, outsized exposure to middle-market borrowers, a high mix of secured funding, a weak but improving earnings profile relative to stated targets, inconsistent strategic direction over time and planned rapid growth supported by increased leverage. These constraints are set against a backdrop of a highly competitive middle market underwriting environment, which could pressure asset quality in the coming years, particularly in the context of NewStar's growth.

Fitch believes NewStar has an experienced executive team having worked together for over 11 years. The leadership team includes many of the founding members, averaging more than 20 years of experience in loan origination, credit underwriting, capital markets and asset management.

Read the full Fitch Ratings release.