Restructuring lawyers circle Towergate as bonds tank

* Lawyers approach Towergate bondholders after price collapse

* Bondholder report casts doubt on insurance broker's future

* Documents suggest Advent now majority shareholder (Adds CFO's comments, RCF financial covenant)

By Robert Smith

LONDON, Nov 19 (IFR) - Restructuring lawyers are approaching Towergate's bondholders, after the UK insurance broker's bonds plummeted to fresh lows on news that it had fully drawn its revolving credit facility (RCF), casting doubts on whether it can continue as a going concern.

"We really are in the eye in storm," said Towergate's CFO Scott Egan about its broking business on a conference call with bondholders.

"I don't see the recovery in organic performance happening quickly...the change that has impacted this business and impacted its performance will continue into the first half of 2015."

Towergate held the conference call with bondholders at 14:00, but US law firm Sullivan & Cromwell has also scheduled its own conference call with bondholders at 17:30, according to market sources.

A restructuring lawyer at another firm said he has been speaking with some of the largest holders of Towergate's senior secured bonds to see if they want to form a bondholder group.

Documents filed by Towergate earlier this year suggest that private equity firm Advent has quietly upped its equity in the group to gain majority ownership, giving it more say in any potential restructuring.

The company's bonds sunk to record lows on Wednesday morning after Towergate published a report saying it had maxed out short-term credit facilities typically used to cover liquidity shortfalls. It has drawn £85m from the RCF, up from £43m last September.

In the report to bondholders, Towergate said it has not yet breached its financial covenant, but that it has had to enter discussions with lenders to renegotiate the terms as "the Group may be unable to satisfy its financial covenant going forward."

In a presentation to bondholders, Towergate said the RCF's financial covenant tightens from 8.75x leverage to 7.95x during the course of 2014.

Leverage at the end of the third quarter 2014 was 7.4x.

The liquidity crisis is so severe that Towergate has told bondholders "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."

Towergate's unsecured bonds are getting hammered. The £304.6m 10.5% 2019 senior bonds opened at a cash price of 61.25, according to Tradeweb, but by 11:00 were bid nearly 30 points lower at just 33.75.

Towergate's 8.5% 2018 senior secured bond and its £396m 2018 senior secured FRN are both bid much higher at around 79, reflecting their stronger position in the capital structure.

WHITE KNIGHTS

"There's a coupon payment due in February and the market does not think Towergate can meet it," said an analyst at a hedge fund.

"A white knight could step in, but they'd almost certainly haircut the unsecured bonds anyway."

The "white knight" refers to the group's announcement that it has received approaches from parties interested in potentially acquiring the Group, and that it has consequently appointed Evercore and Rothschild as joint advisers to support the evaluation of proposals.

Private equity firm Advent International is Towergate's largest shareholder, having bought a significant minority stake in 2011.

But it now appears that Advent has gained majority control of the group. Towergate PartnershipCo Limited passed a special resolution in June allowing Advent to increase its holding of certain subsidiaries above 50%, according to a document filed at Companies House.

Advent declined to comment on the specific terms of its investment.

"It looks like Advent are trying to make sure they control any potential restructuring process," said the hedge fund analyst.

Towergate PartnershipCo Limited is the holding company of the Towergate group, and its subsidiaries are the operating companies that make up the insurance brokerage business.

Market participants are trying to gauge what recoveries unsecured bondholders are facing under different scenarios.

"We expect the bidder, or perhaps Advent if a bidder eventually does not materialize, will look to do a new money deal with senior secured bondholders, implemented by means of a UK pre-pack administration," said the restructuring lawyer.

If that were the case unsecured recoveries would be low, which is why the subordinated paper collapsed following the announcement.

There could be some upside in the senior unsecured bonds at their current prices, according to a second hedge fund investor, who said a strong business in this sector could sell for 8 to 10x Ebitda.

"It's unlikely to be sold that high, but a trade buyer that sees synergies could be interested for 6 to 7x. They would be a lot less likely to cram down the unsecured bonds than a private equity firm." (Reporting by Robert Smith, Editing by Alaex Chambers, Julian Baker)