Fitch downgrades Towergate bonds

Fitch has downgraded the main body of bonds backing Towergate and has said that the recovering broker’s turnaround has been “slow to date relative to Fitch’s expectations”.

Fitch said today that it has cut its rating on Towergate’s £425m senior secured bonds to B- from B.

It has affirmed the B- issuer default rating on TIG Finco PLC, the Towergate entity that issues the bonds, and the BB- rating on the broker’s £75m of super-senior secured bonds. It has maintained a negative outlook on the ratings, which mean they are at risk of downgrade.

The Towergate bonds were issued as part of the broker’s financial rescue last year.

Fitch praised Towergate for cutting costs through its turnaround plan, but said that falling revenue and earnings meant that the company’s relative indebtedness had remained “high” for a company with a B- default rating.

The ratings agency said the negative outlook reflected the uncertainty around the reduction of relative debt levels and “tight” cash liquidity position because of exceptional costs, restructuring charges and redress payments.

It added: “In particular, progress on the transformation plan has been slow to date relative to Fitch’s expectations and we see its delivery as critical to the success of the business.”

Despite its difficulties, Fitch noted that Towergate enjoys a “leading position and an independent insurance intermediary”.

It also highlighted that main shareholder HPS had been supportive, playing an “important role” in providing additional cash liquidity through the Broker Network sale and the new £26m loan, and that new shareholder Madison Dearborn Partners is ready to inject more money into the company.