Highbridge-led group commits £300m to Towergate

Unsecured lenders avoid wipe-out with agreement of terms for consensual restructuring.

Alternative investment firm Highbridge Principal Strategies is set to become the largest shareholder in UK-based Towergate Insurance after agreeing to provide £300 million (€403.9 million; $457.1 million) of new capital to the distressed group. The restructuring agreement replaces a deal with the insurers senior secured creditors that would have handed control to them and wiped out the senior unsecured creditors.

JP Morgan affiliate Highbridge along with KKR Credit Advisors and Sankaty Advisors will own 80.6 percent of the insurer’s equity as part of a revised restructuring plan, pending court approval at the end of March.

More than 75 percent of senior secured creditors and around 65 percent of senior unsecured creditors have agreed to the transaction, the terms of which were announced on Friday (6 February). The Highbridge-led group increased its cash offer for Towergate to gain senior secured bondholder approval for the transfer of ownership, PDI understands.

Senior secured creditors will receive a pro-rata share of £425 million new senior secured notes, £250 million of cash and 19.4 percent of equity. The new senior notes have maturities of five years.

The majority shareholders said in a statement: “We are excited about working with the Towergate team. This joint agreement provides the best guarantees for Towergate’s employees, insurer partners and customers. This agreement brings long-term financial strength and stability, and outlines a compelling strategy to strengthen Towergate as a leading UK insurance broker.”

The joint agreement will see 60 percent reduction in net senior debt for Towergate to around £380 million. Net debt will be cut from the current £1.05 billion and net leverage will reduce from 9.6x to roughly 3.5x.

Senior unsecured creditors have provided £250 million in cash to subscribe for equity in the restructured group and the equitisation of their claims. Another capital increase of £50 million has been fully back-stopped by Highbridge upon closure of the transaction. In total, new capital of £375 million has been provided to Towergate including £75 million of new super senior notes back-stopped by certain members of the senior secured lenders.

The capital increase of £50 million and new super senior notes of £75 million will provide Towergate with £125 million of additional liquidity to be used for working capital, capital expenditure and general corporate purposes.

The joint agreement will be implemented by way of two parallel schemes of arrangement, in respect of each set of creditors.

Alastair Lyons, chairman of Towergate, said: “I am very happy that a consensual agreement has been reached between our senior creditors. This further agreement brings the very difficult last few months to an excellent conclusion. The Company now has a highly committed shareholder base that has demonstrated its strong belief in the potential of our business by the extent of their investment. The Company has a strong balance sheet, having substantially reduced its debt burden, and has almost halved its interest bill.”