LONDON, Feb 4 (IFR) – Towergate’s unsecured bondholders are in discussions to provide fresh money to take control of the troubled UK insurance broker, according to several market sources.
Private equity firm Advent is the majority owner of Towergate, but has been in discussions with creditors since November, when news that the company had fully drawn its revolving credit facility cast doubts on whether it could continue as a going concern.
The company’s senior secured bondholders announced their own restructuring deal on Monday, which would wipe out the unsecured notes.
But the two classes of bondholders are negotiating behind the scenes in a parallel process, with a banker close to the situation saying that a deal could be struck within 24 hours.
“This needs to be decided this week and we are in advanced discussions,” he said. “People are positively inclined towards it.”
Towergate’s unsecured creditors hold the company’s £304.6m 10.5% 2019 senior bond, which is subordinate to the £234m 8.5% 2018 senior secured bond, £396m 2018 senior secured FRN and £85m revolving credit facility.
The senior secured bondholders have struck a debt for equity swap with the company, where for each pound of principal they receive 52p of new senior secured debt, 21p of holdco payment in kind (PIK) notes and 27p of equity stapled to the PIK.
Secured holders also receive the right to participate in new super senior secured notes.
A second banker close to the deal described this as a “backstop” if a deal with the unsecured bondholders falls through, however.
“Essentially the senior secured holders had to announce something before the impending coupon payments trip the whole thing into grace period,” said an investor close to the situation.
“But the secured guys have no desire to put cash into the business. So the unsecured guys are offering to put in at least £200m of equity to take control.”
Private equity firm KKR is understood to own the largest proportion of the unsecured bonds, with Highbridge Capital also possessing a substantial amount.
“They want to pick up the business on the cheap,” said the investor.
If a deal is cut, the senior secured bondholders will proceed with the debt for equity swap until the unsecured bondholders are in a position to make their takeover offer.
If this process drags on then the secured bondholders could take over Towergate first, before selling their equity to the unsecured bondholders later.
Once the process is complete, the unsecured bondholders will offer to take over the company through a cash-out mechanism. Under this offer, the junior holders would pay for up to £250m of the equity at par, which will then also give them around 80% of the PIK note.
The 10-year PIK note will accrue interest at 12% a year.
The unsecured bonds are presently trading at a single digit cash price, according to a second investor, making them virtually worthless. If a deal is struck, their value could increase substantially.
A spokesperson for Towergate declined to comment. KKR and Highbridge Capital did not respond to requests for comment.