Towergate talks intensify as restructuring proposal unveiled

Unsecured bondholders Sankaty, Highbridge and KKR resist proposal.

A group of unsecured creditors to UK-based Towergate Insurance, including fund managers Sankaty Advisors, Highbridge and KKR, are in intensive talks with a group of secured creditors over the restructuring plan for £1 billion (€1.33 billion; $1.51 billion) of debt, PDI understands.

The senior secured lenders have seized control of Towergate from private equity owner Advent and revealed a binding agreement which has already been approved by the company board restructuring committee. More than 70 percent of the senior secured creditors have also approved the plan to implement a restructuring and recapitalisation, as announced by Towergate on 2 February.

The deal, subject to a UK court procedure known as a scheme of arrangement, will wipe out Advent’s equity and lead to heavy losses for bondholders, the Financial Times reported.

“[Towergate] is aware that discussions between senior secured and senior unsecured creditors are ongoing to determine the terms on which the senior unsecured creditors may participate in the restructuring,” Towergate said in a statement.

Towergate has proceeded with the senior secured creditors’ proposal in favour of an alternative plan from the senior unsecured group as it would leave the group with slightly higher debt, the FT said.

The tabled plan proposes to reduce net senior debt by more than 60 percent and is expected to complete before March-end 2015. Seventy percent of senior secured creditors have agreed to lock-ups for a scheme of arrangement, which typically requires consent from 75 percent of a certain class of notes. Senior bondholders should have the required level of support for the deal however, the FT reported.

“This ends a long period of uncertainty for Towergate and lays the foundations for a strong future. With a very substantial reduction in our existing debt burden and £75 million of new investment we have what we need to be able to realise our strategic ambitions,” Alastair Lyons, interim executive chairman of Towergate, commented.

Senior secured creditors have agreed to provide £75 million of super senior notes which will be issued at 4 percent original issuer discount. Proceeds will be available for working capital, capital expenditure and general corporate purposes.

A spokesman acting on behalf of the ad hoc committee said: “We are pleased to announce our agreement to acquire the Towergate Group which provides for a substantially deleveraged capital structure and a new money facility to put the Towergate Group on a stable, long-term footing.”

Houlihan Lokey is advising the unsecured group while Moelis is advising the secured group, it’s understood.

Sankaty Advisors and Highbridge declined to comment. KKR and Towergate had not responded to a request for comment at time of going to press.

As part of the agreement, senior secured creditors have proposed to convert all existing claims, including interest until completion of the transaction, into £375 million of new 8.5 percent senior secured notes due March 2020, £150 million of unsecured subordinated payment-in-kind notes (HoldCo PIK notes) due 2025 which will accrue PIK interest at 12 percent. In return, the senior secured creditors take 100 percent control of Towergate.

The new proposal would see net debt of £1.05 billion and leverage of 9.6x replaced with consolidated net senior debt of approximately £370 million, including the £75 million new super senior notes and net leverage of 3.4x. The new funding will be underwritten by certain members of the ad hoc committee of senior secured lenders.

The new super senior and senior secured debt financing will have maturities of four and five years respectively. The transaction will not affect any of the operating subsidiaries of the group.