UK-based intermediary Towergate is to fall into the hands of its senior creditors that will result in a financial restructuring, an immediate cash injection of £75m ($112m), the wiping out of the stake of its private equity backer Advent, and a 60% haircut for bondholders.
Towergate said that more than 70% of the Group's senior secured creditors had voted in favour of the deal. Discussions are ongoing between senior secured and senior unsecured creditors that determine the terms on which the senior unsecured creditors will participate in the restructuring.
An Ad Hoc committee has been formed that represents the new owners of Towergate. A spokesman acting on the committee's behalf said that the deal "provides for a substantially deleveraged capital structure and a new money facility to put the Towergate Group on a stable, long-term footing".
Under the terms of the agreement senior secured creditors will convert all their existing claims, including any interest due between now and the completion of the transaction, into £375m of new senior secured notes, a further £150m of subordinated "PIK" (payment in kind) notes (typically not repaid until maturity, with interest compounding on the way), and 100% of ordinary shares of the new holding company for the group. The transaction will reduce Towergate's net senior debt by 60%. Prior to the reconstruction Towergate had net debt of about £1.05bn and leverage of 9.6x. After the deal it will have net debt of £370m and leverage of 3.4x.
The £75m cash injection, termed "super senior financing", will be used for working capital and will have a four-year maturity. The new senior secured debt will have a five-year maturity. Neither loan will have financial maintenance covenants.
Certain members of the Ad Hoc Committee are underwriting the reconstruction requirements, but participation will be offered to all senior secured creditors, pro rata to their existing secured debt holdings – assuming certain investor qualification criteria are met.
The agreement will be implemented via a scheme of arrangement, which requires court approval. It is expected to complete before the end of March 2015. The new board will be governed by a majority of independent non-executives, alongside the chief executive and chief financial officer. Mark Hodges resigned as CEO of Towergate last October, with Alistair Lyons taking over as Interim Executive Chairman. A search continues for a new CEO.
For each pound sterling of existing secured debt principal, creditors will receive 52p of new senior notes, 21p of PIK notes and 27p of ordinary equity, plus right to participation pro rata in the new super senior notes.
The £75m super senior debt will be offered at a 4% Original Issuer Discount, maturing in March 2019 and paying cash interest of Libor plus 7.5%, with a 1% Libor floor. The new Senior Secured Notes will mature in March 2020 and will pay a cash coupon of 8.5% a year.
The PIK notes will pay interest at 12% a year, will be unsecured and permanently stapled to existing ordinary equity. They will mature in 2025.
Meanwhile, Towergate has released preliminary financial results for 2014.
Income declined to £426m, from £443m the previous year. EBIDA declined 24% year on year to £110m, and "available cash" fell by 7% to £48m.
Towergate said that financial performance continued to be impacted by the 2014 change programme, and that it expects the impact of this programme to continue into the first half of this year. "The cost and income benefits from the change initiatives are expected to emerge progressively across 2015".
Towergate suffered because a number of trading deals were not finalised with insurers prior to December 31 "owing to the uncertainties affecting the Group".