NewtekOne's High-Yield Senior Debt: A Strategic Play in a Rising Rate Environment

In a financial landscape marked by persistent interest rate hikes, companies with robust capital structures and disciplined debt management strategies are poised to outperform. NewtekOne (NEWT), a diversified financial services firm, has emerged as a compelling case study in this environment. By leveraging high-yield senior debt and executing a capital structure optimization strategy, the company is not only mitigating risks but also generating attractive yields for investors.

Capital Structure Optimization: Balancing Leverage and Flexibility

NewtekOne's capital structure has been a focal point of its strategic initiatives. As of September 30, 2025, the company reported a debt-to-equity ratio of 5.69, reflecting a significant reliance on debt relative to equity. However, this leverage is being actively managed. For instance, the firm recently exchanged its 5.50% Notes due 2026 for 8.50% Fixed Rate Senior Notes due 2031. This refinancing extends the maturity period and increases the interest rate, aligning with the company's goal to reduce short-term liquidity pressures while securing more favorable terms in a rising rate environment.

The holding company's leverage ratio further underscores its optimization efforts. In Q3 2025, the leverage ratio stood at 12.5%, a figure that suggests a cautious approach to risk while maintaining operational flexibility. To strengthen its balance sheet, NewtekOne raised $30 million of Common Equity Tier 1 (CET1) capital and $80 million of Tier 1 capital during the quarter. These capital infusions, coupled with a $95 million financing solution from Goldman Sachs for Newtek Merchant Solutions, demonstrate a proactive strategy to bolster liquidity and meet regulatory requirements.

The company's upcoming Alternative Loan Program (ALP) securitization in Q4 2025, targeting $325 million to $350 million in loans, is another critical component of its capital structure optimization. By converting illiquid assets into cash, NewtekOne aims to enhance its capital position and fund further growth according to Q3 earnings.

Yield Generation: High-Yield Debt as a Strategic Asset

NewtekOne's high-yield senior debt instruments have proven to be a cornerstone of its yield-generation strategy. The company's 8.625% Fixed Rate Senior Notes due 2029, issued in September 2024, offer a yield-to-call of 9.9%, significantly outperforming comparable high-yield bond ETFs. This performance is underpinned by the company's strong financial metrics: in 2024, NewtekOne's revenue grew by 24.93% to $338.73 million, while earnings increased by 7.36% to $49.25 million. Such profitability reinforces investor confidence in the company's ability to service its debt, even as interest rates climb.

Market skepticism about high-yield bonds has not deterred NewtekOne's appeal. Analysts argue that the company's 2029 notes are undervalued due to broader market pessimism rather than genuine credit risk. This perception gap creates an opportunity for investors seeking high yields in a disciplined, capital-efficient firm. Additionally, NewtekOne's transition to a bank holding company structure has enhanced its capital flexibility, further solidifying its long-term stability.

Strategic Resilience in a Challenging Macro Environment

Despite macroeconomic headwinds-such as potential disruptions to SBA programs due to government shutdowns-NewtekOne's deposit growth remains robust. Q3 2025 results showed 17% year-over-year growth in business deposits and 12% in consumer deposits. This diversification of funding sources reduces reliance on volatile markets and supports the company's ability to service high-yield debt.

Conclusion

NewtekOne's strategic use of high-yield senior debt and capital structure optimization positions it as a resilient player in a rising rate environment. By extending debt maturities, raising equity, and leveraging securitization, the company is balancing risk and reward effectively. For investors, its 8.625% 2029 notes offer a compelling yield proposition, supported by strong operational performance and a disciplined approach to capital management. As the financial landscape evolves, NewtekOne's proactive strategies may serve as a blueprint for navigating uncertainty while maximizing returns.