Broking group admits it could breach its loan covenant and is at risk of going under if it cannot raise cash in time
Towergate is looking to sell small non-core businesses to stave off a cash shortage in the first quarter of next year.
The broking group admitted that if it fails to raise additional cash in time, it could cast “significant doubt” on the company’s ability to continue as a going concern.
But executive chairman Alastair Lyons told Insurance Times that the company has “reasonable expectations” that its plans will deliver the cash flow the company needs.
The news comes as Towergate has received approaches for its entire business.
In its bondholder report, released this morning, the troubled broking group admitted that that there were “uncertainties” around operational cash flow and liquidity in the first quarter of 2015, when the company has to make its half-yearly interest payment on its debt.
It said it was planning to address these through “disposals of small non-core businesses and other identified management actions”.
It also said that it is renegotiating the covenant for its £85m revolving credit facility, which it has now fully used. It said it is currently in compliance with the covenant, but added that the covenant becomes more stringent as the facility approaches maturity. “The group may be unable to satisfy its financial covenant going forward and is therefore seeking to agree renegotiated terms.”
Towergate said that the timing and number of the non-core sales and other management actions were uncertain as some involve negotiation with third parties.
The company said: “If such actions are not successfully completed within the necessary timeframe, there is a risk that the group may have a liquidity shortfall in Q1 2015. If as a result of such shortfall we fail to meet our payment obligations under our debt facilities, bondholders and/or lenders may have the ability to demand early repayment of their debt.
Given the uncertainties about the unit sales, covenant renegotiation and the potential for redress payments to customers, Towergate said: “It has to be recognised that there is material uncertainty which may cast significant doubt as to the group’s ability to continue as a going concern and, if the assumptions underpinning the group’s projections are not realised, the group may therefore be unable to realise its assets and discharge its liabilities in the normal course of business.”
But it added that if the disposals and other actions go according to plan, the company “will have adequate financial resources to enable it to continue in operational existence for the foreseeable future.”
Lyons told Insurance Times: “We have actions in place which we have reasonable expectations will deliver the cash flows that we need in order to meet our obligations in the first quarter.
“If we didn’t have those reasonable expectations we wouldn’t have produced the set of accounts in the way that we have.”
Asked if failure to achieve the plans would result in Towergate going under, Lyons said: “We’ve got a clear plan and a set of actions in place to deliver the headroom we need. As we go through, we’ll keep the position under review given the circumstances of the time. There’s really no point in discussing hypothetical situations now.”
Asked if the cash flow position could trigger a downgrade in Towergate’s issuer default ratings, Towergate chief financial officer Scott Egan said: “I wouldn’t prejudge any outcome.
“I’m in discussions with ratings agencies, as I am every quarter, sharing with them results and colour around them. We have to allow them to make up their own mind as to how they react to those results.”
Towergate said its cash position had been hit by its trading performance, investment in transforming the group and costs relating to regulatory investigations. Net cash outflow in the first nine months of 2014 was £59m, compared with £40m in the first nine months of 2013.