02 February 2015
Towergate Insurance (“Towergate”, the “Company” or collectively with its subsidiaries, the “Group”) is pleased to announce that it has today entered into a binding agreement (the “Agreement”) with its senior secured creditors to implement a financial restructuring and recapitalisation of the Group.
Under the terms of the Agreement, Towergate will emerge with a substantially deleveraged capital structure, together with additional liquidity resources with which to deliver its strategic plan.
The Agreement has received the unanimous approval of the Restructuring Committee of the Board and in excess of 70% in aggregate of the Group’s senior secured creditors.
The Company 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. The Company will make further announcements as appropriate.
The Company also announces today the Group’s preliminary consolidated results for the year ended 31 December 2014.
Commenting on the restructuring, Alastair Lyons said:
“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.
This action by our lenders, who now take over the ownership of the Group, makes clear their confidence in Towergate as a market leader and in our people’s ability to create significant value from that position.
That is a confidence that has been shared by all those of our insurer partners, suppliers and clients who have supported us through the difficult period from which we are now emerging – a confidence that we will now be able to repay.”
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. Our agreement enables the Towergate Group to seize opportunities in the market while establishing the stability required to maintain the support of Towergate’s insurer partners, customers, suppliers and employees. We view Towergate’s employees as critical to Towergate’s future success and we look forward to working with them to strengthen Towergate's position as a market-leading UK insurance provider."
Under the terms of the Agreement, senior secured creditors will convert all of their existing claims (including accrued interest until completion of the transaction) into £375 million of new senior secured notes, £150 million of subordinated PIK notes and 100% of the ordinary shares of the new holding company for the Group. Following the transaction, net senior debt will be reduced by more than 60%.
Additionally, senior secured creditors have agreed to provide £75 million of new finance in the form of super senior notes which will be funded at completion.
The Agreement will result in the transfer of 100% ownership in Towergate to its senior secured creditors.
This represents a very positive outcome for Towergate, for the following reasons:
Key terms of the restructuring*
Subject to the completion of the scheme of arrangement and other approvals, the transaction will involve secured creditors taking ownership of the Group through the exchange of existing secured debt for new debt securities and equity. In consideration for each pound (£) of existing secured debt principal**, senior secured creditors will receive:
Following completion of the transaction, senior secured creditors will own 100% of each of the ordinary shares, the HoldCo PIK Notes, the New Senior Notes and the New Super Senior Notes.
The Agreement envisages that the interest coupons due on existing debt in February 2015 (both senior secured and senior unsecured) will not be paid.
The key terms of the new securities to be issued to secured creditors under the Agreement are summarised below:
New Super Senior Notes
The New Super Senior Notes will have a face value of £75 million and will be issued in full on closing at a 4% Original Issuer Discount. They will mature in March 2019 and pay annual cash interest of Libor + 7.5%, with a 1% Libor floor. The proceeds will be available to the Group for working capital, capital expenditure and general corporate purposes including the payment of transaction-related costs.
The New Super Senior Notes will be subject to customary high yield covenants related to incurrence of indebtedness, payment of dividends, sale of assets, entry into affiliate transactions and other customary limitations.
New Senior Secured Notes
The New Senior Secured Notes will be issued in exchange for all of the existing senior secured debt and will have a face value of £375 million. They will mature in March 2020 and pay a cash coupon of 8.5% per annum. This reduction in debt will represent a c.50% saving to the Company’s current annual senior debt interest expense, allowing for more free cash flow to be reinvested in the Group.
The New Senior Notes will be subject to customary high yield covenants related to incurrence of indebtedness, payment of dividends, sale of assets, entry into affiliate transactions and other customary limitations.
HoldCo PIK Notes
The HoldCo PIK Notes will have a face value of £150 million, will be unsecured, and will be permanently stapled to the ordinary equity. They will mature in 2025 and will accrue “Payment-In-Kind” interest at 12% per annum.
* For more information, the form of the lock up agreement and term sheets relating to the proposed transaction will be made available on the Company’s website
** Calculation based on principal outstanding, excludes accrued interest
*See Notes to Financial Statements
* See Notes to Financial Statements
Further to the updates provided in Towergate Holdings II Limited’s report to bondholders for the nine months ended 30 September 2014, Towergate continues to be in discussions with the Financial Conduct Authority (FCA) in relation to past advice provided by the Towergate Financial business on Enhanced Transfer Values (ETV) and Unregulated Collective Investment Schemes (UCIS). The independent file reviews for both investigations are ongoing. Customer contact, which will be a key factor in determining the extent of the Group’s redress obligation, is currently expected to commence in Q1 2015 and to be phased over an aggregate period of three years. Payment of any necessary redress is expected to occur over similar periods of time once the relevant customers have been contacted and the redress methodology has been agreed. Payments are expected to commence in Q3 2015.
Given the number of material uncertainties that continue to exist, it is not yet possible to make a reliable estimate of the Group’s ultimate liability in connection with these investigations. However, purely for the purposes of developing business plans and cash flow projections for the Group, Towergate has adopted a range of £65 million to £85 million in potential redress costs for ETV and UCIS in aggregate, excluding costs and expenses.
This internal range is derived from a set of assumptions based on currently available information. As explained above, in view of the material uncertainties all such assumptions are subject to change and Towergate can give no assurances as to whether its ultimate liability will be within this range or whether it will be lower or higher. The ultimate liability for ETV and UCIS may, therefore, be materially different to this range.
In addition, the foregoing does not include any recoveries that may be available either from relevant third parties or under the Group’s insurance arrangements, both of which the Group continues to pursue. The maximum recoverable amount under insurance arrangements is £12 million (subject to a deductible) in addition to costs, although the ultimate extent and timing of any recoverability remains uncertain.
Further to the approaches received by the Company in November 2014, the Company has run a wide-reaching sale process and has contacted multiple trade and financial buyers. Pursuant to this process, the Company received indicative bids for the Group, which were significantly within the value of the outstanding senior secured creditor claims.
Of these, a strategic bidder carried out substantial due diligence and made a proposal which valued the Company significantly within the senior secured debt on a net basis. This non-binding proposal was to be paid in full in cash at closing and expires tomorrow.
Launched in 1997, Towergate is the UK’s largest independently owned insurance intermediary, generating more than £3 billion of pro forma gross written premiums across its companies and employing over 5,000 people across more than 100 UK offices.
Towergate is an important distribution channel for a significant range of insurance products and a key strategic partner for the UK’s largest insurers.
Towergate’s scale, customer insight and distribution relationships make it a unique business and a leader in the markets in which it operates. Its combination of distribution and underwriting gives it unparalleled consumer data and market insight.
Towergate operates across five core divisions:
Preliminary financial results for the year ended 31 December 2014 of the Company have been included in this press release. Because this financial information is preliminary and not prepared in accordance with international financial reporting standards, the numbers presented are estimates and could change. This financial information has not been reviewed by any audit firm and is inherently subject to modification during the preparation of financial statements.
This press release also contains statements that are, or may be deemed to be, forward-looking statements. In some cases, these forward-looking statements can be identified by the use of forward-looking terminology, including the words ‘‘aims’’, ‘‘believes’’, ‘‘estimates’’, ‘‘anticipates’’, ‘‘expects’’, ‘‘intends’’, ‘‘may’’, ‘‘will’’, ‘‘plans’’, ‘‘predicts’’, ‘‘assumes’’, ‘‘shall’’, ‘‘continue’’ or ‘‘should’’ or, in each case, their negative or other variations or comparable terminology or by discussions of strategies, plans, objectives, targets, goals, future events or intentions. Many factors may cause the Company’s results of operations, financial condition, liquidity and the development of the industries in which it operates to differ materially from those expressed or implied by the forward-looking statements contained in this press release. These factors include among others:
The risks described above are not exhaustive. New risks can emerge from time to time, and it is not possible to predict all such risks, nor can the Company assess the impact of all such risks on its business or the extent to which any risks, or combination of risks and other factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, there should be no reliance on forward-looking statements as a prediction of actual results. Any forward-looking statements are only made as of the date of this press release, and the Company does not intend, and does not assume any obligation, to update forward-looking statements set forth in this press release. All subsequent written or oral forward-looking statements attributable to the Company or to persons acting on its behalf should be interpreted as being qualified by the cautionary statements in this press release. As a result, undue reliance on these forward-looking statements should not be placed.
No offer; important information
This press release does not constitute an offer to acquire or sell or a solicitation of an offer to sell or purchase any securities in any jurisdiction. In particular, this press release does not constitute an offer, solicitation or sale in the United States or any state or jurisdiction in which such an offer, tender offer, solicitation or sale would be unlawful. The securities referred to herein have not been and will not be registered under the United States Securities Act of 1933 and may not be offered or sold in the United States absent registration or an available exemption from registration under the United States Securities Act of 1933.
In relation to each member state of the European Economic Area (other than the United Kingdom), this press release and any offer of securities if made subsequently is directed only at persons who are “qualified investors” within the meaning of Article 2(1)(e) of the Prospectus Directive (Directive 2003/71/EC, as amended).
UK and US Tax considerations
Holders of senior secured debt are advised to consult their own tax advisors as to the UK, US federal income and any other tax consequences to them of participating in the transaction and of owning and disposing of the securities to be issued in the transaction.
Kelly-Ann Knight - Corporate Communications Director
Towergate Insurance Limited
Lois Hutchings - Group FP&A and Investor Relations Analyst
Towergate Insurance Limited