Moody’s: Tough conditions will continue to hold Towergate back

Towergate’s organic growth, profit and cash flows will remain constrained over the next 12 to 18 months despite its successful restructuring and refinancing, rating agency Moody’s said.

Following the completion of the restructuring, Moody’s has assigned a B3 corporate family rating and B2-PD probability of default rating to Towergate’s new intermediate holding company, TIG Finco – the entity that issues the bonds in the new structure.

The agency has also rated Towergate’s new £425m of senior secured bonds at B3/LGD5 and £75m of super-senior bonds at Ba3/LGD2.

Loss given default (LGD) assessments express the rating agency’s opinion on the size of losses to bondholders if the bond issuer cannot repay its debt. An LGD2 assessment suggests bondholders would lose between 10% and 30% of their initial investment and any interest, while LGD5 predicts a loss of between 70% and 90%.

Fellow rating agency Fitch has also rated the new holding company and bond issues and predicted continuing challenges for Towergate.

Tough conditions

Moody’s praised Towergate’s restructuring, saying that it will “significantly” reduce Towergate’s debt and interest, and will enhance the broking group’s liquidity.

It also said the B3 rating on TIG Finco reflected Towergate’s strong position in the UK broker market, good product diversification and attractive profit margins.

However, the agency added that it expects difficult trading conditions in the UK to continue, constraining Towergate’s revenue and growth in earnings before interest, tax, depreciation and amortisation (EBITDA) over the next 12 to 18 months.

It added that Towergate’s continuing change programme would continue to hit profitability in the short term.

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