‘Perfect storm’ spurred Brightside’s £6.8m capital raising

An “unpredictable” combination of shrinking capacity, a takeover bid and payments for historic acquisitions prompted Brightside’s £6.8m share issue, said interim chief executive Paul Chase-Gardener.

Brightside announced on Friday that it had raised the money to plug a short-term cash shortfall, which could have left the listed broker in breach of the banking covenants for its premium finance business.

Speaking to Insurance Times after the capital raising was announced, Chase-Gardener said: “If you know the history of Brightside’s 2013 it was a bit of a perfect storm. I certainly hope it is not repeated.”

Profit warning

Brightside warned on 31 July last year that Gibraltar-based insurer Southern Rock had “significantly” cut the capacity it provides to Brightside’s eCar online motor business.

The warning contributed to the collapse of motor insurer Markerstudy’s proposed takeover of Brightside.

The broker subsequently warned on 16 December that its full-year 2013 profit would be 20% lower than previously forecast because of the capacity restrictions.

The reduction in business done by Brightside in turn affected the composition of the company’s premium finance book.

Chase-Gardener said: “When you have got a premium finance book that is running off at a given rate and you see changes in its mix, you realise that the amount you can draw on it is likely to be less than you thought and unless something changes you are going to have a hotspot.”

On top of this, deferred payments relating to Brightside’s 2010 acquisition of eCar and online motorcycle business eBike came due.

Shareholder support

Chase-Gardener said the capital raising has some positives for Brightside. The funds raised to plug the short-term gap will be available for the company to use in the medium and long term when cash flows improve.

Chase-Gardener said: “We felt that we needed to bolster up the short-term position and could use the capital in the medium and long term very usefully anyway.”

He added that the shareholders had put their full support behind the capital raising.

He said: “They know we can deploy the business at a higher return in the future. It is a very sold and gratifying level of support from the shareholders. We could have raised significantly more, but we only take what we need.”