06 February 2015
Further to its announcement on 2 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 “Joint Agreement”) with its senior secured and senior unsecured creditors to implement a financial restructuring and recapitalisation of the Group.
Under the terms of the Joint Agreement, Towergate will, as announced previously, emerge with a substantially deleveraged capital structure, together with additional liquidity resources with which to deliver its strategic plan. The joint proposal results in the same 60% reduction in net debt for the Company whilst also injecting a further £50 million equity into the restructured business, on top of the additional £75 million of super senior secured notes previously committed by the senior secured creditors.
With a total of £375 million of new capital being provided under this agreement, the business is now significantly deleveraged and has the appropriate capital structure to expand further on its market-leading position in the UK insurance intermediary space.
The Joint Agreement has received the unanimous approval of the Towergate Board, in excess of 75% in aggregate of the Group’s senior secured creditors, and approximately 65% of senior unsecured creditors.
As a result of the revised transaction, majority ownership of the Group will transfer to the senior unsecured creditors, including funds or accounts managed or advised by Highbridge Principal Strategies, LLC (“Highbridge”), KKR Credit Advisors (US) LLC (“KKR”) and Sankaty Advisors, LLC (“Sankaty Advisors”). Highbridge will be the largest investor.
Commenting on the Joint Agreement, 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. Taken together with the new funds being invested, this gives the company a strong positive cash flow to support the completion of the change programme and the further growth of the business.”
The new majority shareholders added:
“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.”
Under the terms of the Joint Agreement, the senior unsecured creditors will become the majority shareholders owing to a capital contribution of £250 million in cash (the “SUN Capital Contribution”) to subscribe for equity in the restructured group and the equitisation of all of the senior unsecured claims, giving them 80.6% of the ordinary equity. The SUN Capital Contribution will be offered to all unsecured creditors (assuming certain investor qualification criteria are met) pro rata to their existing unsecured debt holdings.
The senior secured creditors will receive in exchange for all their existing debt claims a pro rata share of £425 million new senior secured notes (the “New Senior Notes”), £250 million of cash and 19.4% of the ordinary equity.
In addition to the SUN Capital Contribution, a further £50 million capital increase (the “Capital Increase”), fully back-stopped by Highbridge, will occur on closing of the transaction. Of the additional £50 million, 80.6% is available to senior unsecured creditors and 19.4% to senior secured creditors (assuming certain investor qualification criteria are met). The proceeds of the Capital Increase will be used to give additional liquidity to the group.
As before, the senior secured creditors have agreed to provide £75 million of new financing for the Company in the form of super senior notes (the “New Super Senior Notes”) which will be funded at completion. The new debt facilities will also allow the Group to raise additional debt in the future if required, further strengthening the liquidity of the Group.
This represents a very positive outcome for Towergate, for the following reasons:
Key terms of the restructuring*
Subject to the completion of the schemes of arrangement and other approvals, the transaction will involve secured creditors exchanging their existing secured debt for new debt securities, cash and equity. In consideration for each pound (£) of existing secured debt principal**, senior secured creditors will receive:
Senior secured creditors will be issued ordinary equity in respect of accrued interest up to £20 million and amounts exceeding £20 million will be paid in cash on completion by the Company (for the avoidance of doubt, Senior Secured Creditors will receive consideration for 100% of their par plus accrued interest claim at completion).
Subject to the completion of the schemes of arrangement and other approvals, each unsecured creditor will receive the right to pro rata participation in the SUN Capital Contribution and Capital Increase (assuming certain investor qualification criteria are met). Non-participating unsecured creditors will receive some equity in a special-purpose vehicle controlled by the unsecured creditors (assuming certain investor qualification criteria are met).
The Joint Agreement envisages that the interest coupons due in February 2015 on existing debt (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 Joint 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 February 2020 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 £425 million. They will mature in March 2020 and pay a cash coupon of 8.75% per annum. This reduction in debt will represent a c.45% saving to the Company’s current annual senior debt interest expense, making available 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.
* For more information, the form of the Joint 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
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:
About Highbridge Principal Strategies
Highbridge Principal Strategies (“HPS”) is a global private investment firm that invests across the capital structure in the public and private capital markets. HPS’ diversified investment platform includes investments in private equity, mezzanine debt, senior secured leveraged loans, high yield bonds and structured credit products with approximately $24 billion of assets under management. HPS has offices in London, New York, Chicago, Houston and Toronto. HPS is SEC-registered and authorized and regulated by the Financial Conduct Authority.
KKR is a leading global investment firm that manages investments across multiple asset classes including private equity, energy, infrastructure, real estate, credit and hedge funds. KKR aims to generate attractive investment returns by following a patient and disciplined investment approach, employing world-class people, and driving growth and value creation at the asset level. KKR invests its own capital alongside its partners' capital and brings opportunities to others through its capital markets business. References to KKR's investments may include the activities of its sponsored funds. For additional information about KKR & Co. L.P. (NYSE:KKR), please visit KKR's website at www.kkr.com.
About Sankaty Advisors
Sankaty Advisors is the independently-managed credit affiliate of Bain Capital, LLC. Founded in 1998 and now managing more than $24 billion of assets, Sankaty has an integrated team of 200 people that enables the firm to invest up and down the capital structure, and to conduct rigorous, independent analysis of thousands of corporate issuers. Sankaty invests in a wide variety of securities and investments globally, including leveraged loans, high-yield bonds, special situations, and equities. An employee-owned private partnership, the firm has offices in Boston, New York, Chicago, London, Luxembourg, Melbourne and Hong Kong. Sankaty Advisors, LLC is registered with the Securities and Exchange Commission and Sankaty Advisors, Ltd., is authorised and regulated by the Financial Conduct Authority.
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