Bond issue will put Towergate 'back on a sound financial footing', says analyst

Towergate is looking to save money on its debt and prepare the business for an IPO with a move to raise £665m from investors.

The cash, which the consolidator wants to raise on the US and European corporate bond markets, would be used to refinance existing debt and to partially pay off hedge funds Och Ziff and Reservoir, which hold preference shares in Towergate.

A leading insurance analyst said it was a “very sensible move”, adding: “They’re tapping the bond markets because the cost of borrowing is cheaper than their existing markets.

“Preference shares roll up on an annual basis. In a market that is low in growth – such as at present – it’s been increasingly difficult for Towergate to match those levels of return.

“With the bond issue, they’re trying to raise money to refinance the business to remove the two hedge funds and to reduce the amount of debt. If successful, this puts Towergate back on a sound financial footing and makes it easier to list the business in the future.”

The analyst said that Towergate could start buying up businesses again if the refinancing went ahead, adding: “Their peers will see this go through and suddenly realise that Towergate is going to be a force in the market again.”

Towergate is not obliged to take up the corporate bonds if it cannot agree attractive terms with investors.

Meanwhile, the two hedge funds are expected to retain a smaller stake in the business, which will also continue to have a degree of bank debt.

At the end of 2009, after months of talks, Towergate agreed to a refinancing deal with a consortium of 10 banks that saw a number of its shareholders, including executive chairman Peter Cullum and chief executive Andy Homer, put about £10m of their own money into the business.

In an interview with Insurance Times in January, Cullum said: “We had a period in 2009 where it was the worst time ever to be reconstituting the financial foundations of Towergate.

“I suppose the lesson that I learned is: know your bankers very, very well.”