Lower probability of broker meeting financial obligations, ratings agency warns

Moody’s has lowered its assessment of Towergate being able to meet its financial obligations while predicting a corporate restructuring of the indebted broker.

The ratings agency downgraded Towergate’s corporate family rating and probability of default rating by two notches to Caa3 and Caa3-PD.

“The group is increasingly constrained in terms of its longer-term liquidity needs,” it warned.

Towergate is due to make £31m of interest payments in the first quarter of 2015. Moody’s said the £27m sale of Hayward Aviation to JLT would make a material contribution to its short-term cashflow needs.

However Moody’s predicted Towergate’s future turnover and cashflow would remain under pressure as a result of “tough trading conditions in the UK, adverse effects on sales from the group’s change programme, and potential reputation damage resulting from recent events, including the loss of certain senior staff members”.

It added: “Moody’s expects cash outflows to remain at elevated levels as the group continues to execute on its change programme, which Moody’s now believes will take longer and cost more than first anticipated, with the timing and magnitude of future cash benefits still uncertain at this stage.”

Bonds

Moody’s also downgraded its assessment of Towergate’s £304.6m of unsecured bonds to Ca, which it defines as “highly speculative and likely in, or very near, default, with some prospect for recovery of principal and interest”.

It downgraded its £630m secured loan notes by three notches to Caa2, which it defines as “of poor standing and subject to very high credit risk”.

Towergate has received approaches by parties interested in acquiring the group and has also invited bondholders to put forward bids for the company.

Although Towergate would be attractive to prospective bidders, Moody’s said its significant debt gave rise to an “elevated probability” of some form of corporate restructuring, with unsecured bondholders expected to lose more than secured bondholders.

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