Towergate unsecured bonds now as risky as Greek debt

Towergate’s unsecured bonds are now as risky an investment as Greek or Ukrainian government debt, according to Moody’s.

The ratings agency today downgraded Towergate’s unsecured bonds to Caa3 – the same rating it has given to bonds issued by the governments of Greece and Ukraine.

Debt obligations rated Caa3 are judged to be of poor standing and a very high credit risk.

Moody’s warned it could downgrade the debt rating if Towergate is unable to renegotiate its banking covenant or if it fails to restore its short term liquidity to fund its operational and debt servicing needs.

The price of Towergate’s unsecured bonds has plummeted since the broker announced it would have to sell part of the business and renegotiate banking covenants in order to continue as a going concern in the first quarter of next year.

It reported a £112.7m loss for the first nine months of the year – a near five-fold increase on the £19.1m lost over the same period last year.

Yesterday the unsecured bonds, which Towergate is due to redeem for $100 in February 2019, were trading hands for $40.

Towergate issued £304.6m of debt through the unsecured bond in 2011. It promised investors a 10.5% annual interest payment as well as their money back at in eight years.

Towergate’s bondholders are actually in a slightly worse position than those who hold Greek government debt as Moody’s has warned the broker’s rating could be further downgraded, while the outlook on Greece’s government bond rating is stable.

Moody’s downgraded Ukraine’s government bond rating to Caa3 in April following the escalation of the country’s political crisis, the annexation of Crimea by Russia and the withdrawal of Russian financial support.

Moody’s also downgraded Towergate’s secured loan notes to B2, which it considers “speculative and subject to high credit risk”.

Its senior secured bond which pays 8.5% interest was yesterday trading at $81.5, while senior secured notes at a floating interest rate sold for $80.5.

Towergate issued £243m and £396m of debt in the secured bonds respectively. They are due to be redeemed for $100 in 2018.