Towergate Creditors Seeking Takeover With $1 Billion Debt Swap

Towergate Finance Plc’s creditors are offering to cancel 715 million pounds ($1 billion) of debt in exchange for control of Europe’s largest insurance broker.

The company’s senior secured creditors also propose writing off the accrued interest, according to a statement from Moelis & Co., which is advising creditors holding about 67 percent of the debt. The group first said it wanted to buy the U.K. insurance broker in December.

This formal offer “enables the Towergate Group to fully benefit from further growth opportunities,” the committee of creditors said in the statement. It “provides for a substantially deleveraged capital structure and a new money facility to put the Towergate Group on a stable, long-term footing.”

Towergate reported a 14 percent slump in earnings in the nine months to September amid rising costs stemming from organizational changes, pricing competition, and regulatory investigations into past advice its financial unit provided to pension savers. The Maidstone, England-based group, which has more than 1 billion pounds of debt, said in November it drew all of its 85 million-pound revolving credit facility and hired Evercore Partners Inc. and Rothschild to evaluate takeover proposals.

“Towergate is actively engaging with creditor groups and other interested third parties as we consider the appropriate way forward for the group,” according to a statement from a spokesman employed by FTI Consulting Inc., who asked not to be identified citing company policy.

Credit Downgrade

The U.K. broker was downgraded four levels to CC, or two steps above default, at Fitch Ratings on Dec. 16. The company’s liquidity “remains under pressure” and management actions will still be needed to ensure it can meet its financial obligations, including 31 million pounds of interest payments coming due in the first quarter of 2015, Fitch said in a statement.

Towergate is continuing discussions with the Financial Conduct Authority in connection with past advice provided by the Towergate Financial business on Enhanced Transfers Values, it said in the November earnings statement. The company said it will extend an independent investigation this year to include more customers.

Towergate’s 249 million pounds of 8.5 percent notes due February 2018 rose 0.2 pence on the pound to 89.6 pence, according to data compiled by Bloomberg. Its 304.6 million pounds of 10.5 percent senior unsecured notes due February 2019 were unchanged at 21.8 pence on the pound.

–With assistance from Tom Freke in London.