Creditors set to seize control of Towergate

Towergate's senior creditors are set to seize control of the insurance broker in a restructuring of its £1bn debt burden that will wipe out the interest of its private equity backer Advent and also lead to heavy losses for bondholders.

Under the terms of an agreement reached on Sunday night, lenders are to endure losses on the debt of more than 60 per cent, according to people familiar with the matter.

The deal is expected to involve a "scheme of arrangement", an agreement to be sanctioned by a court. It will require approval from three-quarters of the dozens of buyout houses, hedge funds and distressed debt funds who hold Towergate's senior debt.

The deal will reduce the debt burden of Towergate, which had been one of Britain's biggest private companies before its fall from grace, to about £370m. The interests of the senior secured lenders will convert to equity.

Towergate, which had warned its ability to continue as a going concern was at risk unless a restructuring could be agreed, will receive an immediate £75m cash injection.

The planned restructuring is set to involve a pre-packaged administration - in effect the pre-negotiated sale of an insolvent business, a process expected to be handled by Deloitte.

The people stressed the administration would involve the holding company, not Towergate's operating entities. Senior bondholders have previously sought to reassure the 5,000-strong workforce, saying "employees are critical to Towergate's future success".

An announcement on the fate of the Kent-based company is expected to be made as soon as Monday. Towergate declined to comment on Sunday.

The people said the group of senior bondholders, advised by Moelis, should have the required level of support.

However, a group of unsecured bondholders advised by Houlihan Lokey - including KKR, the Bain Capital affiliate Sankaty Advisors, and alternative investment manager Highbridge - have resisted the senior bondholders' plan.

They put forward an alternative proposal that would have allowed Towergate to avoid administration. The people said this would ultimately have left Towergate with slightly higher debt leverage than the competing plan from the secured creditors.

It was not clear on Sunday how the unsecured debtholders would respond to the proposal put forward by the board, but people familiar with the matter said the senior creditors were willing to strike a compromise to avoid the threat of litigation. If all goes to plan, the restructuring is expected to be completed in about six weeks.

The deal will reduce Towergate's net debt from 9.6 times its profits before interest, taxes, depreciation, and amortisation - widely recognised to be an unmanageable level - to a more controllable 3.4 times.

It will also extend the company's debt maturities - the timeframe in which it needs to be repaid - from about two years to between four and five years.

Marsh & McLennan, the US-listed insurance broker, tabled a last-minute cash offer that would have given the business an enterprise value of £650m. However, the people said this proposal, which Towergate rejected, would have resulted in even heavier losses for Towergate's investors.

Towergate ran into trouble after it launched a debt-funded aggressive acquisition spree and then suffered a big drop in profits. About 600 jobs have already been cut in recent months.

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