ID Theft Insurer CPP Nears Financial Lifeline

The struggling identity theft insurer CPP is closing in on a deal with its lenders that should secure its future beyond a £1bn-plus mis-selling payout to customers.

Sky News understands that CPP has finalised the details of a refinancing with a quartet of lending banks that will involve the company slashing its borrowings and agreeing to tough restrictions on its business activities for three years.

The agreement could be announced as soon as Tuesday, according to insiders.

An agreement with Barclays (LSE: BARC.L - news) , HSBC (LSE: HSBA.L - news) , Royal Bank of Scotland (LSE: RBS.L - news) and Santander UK will come as a relief to hundreds of CPP staff employed at its York headquarters who have faced an uncertain future during on-off talks about a takeover of the group.

CPP's founder, Hamish Ogston, walked away from a bid to take it private last month, but the new borrowing agreement with its banks should secure the company's medium-term future.

CPP, which calls itself an "international life assistance provider", operates across more than a dozen countries and expanded rapidly after listing on the London Stock Exchange (LSE: LSE.L - news) in 2010.

It recently sold its US business in an attempt to raise funds following a £10.5m fine imposed by the City regulator last year for mis-selling.

The company sold more than four million policies to customers, many of which were the result of introductions by the major high street banks.

Barclays is expected to bear the scars of its involvement in the scandal when it unveils a sizeable provision for compensation in its half-year results on Tuesday.

The agreement with its lenders will mean that redress for mis-selling can be paid out through a mechanism known as a solvent scheme of arrangement, which comprises a ring-fenced pot of cash for compensation.

Some reports have suggested the total amount could reach £2bn although most observers believe it will be little more than half that sum.

The Financial Conduct Authority is keen for the scheme to get underway as soon as possible, and it is possible that it will launch within weeks depending on final agreement with the banks that will be contributing.

The new borrowing facility is understood to have been cut from the previous £80m to significantly less than half that amount, reflecting CPP's smaller ongoing business. A person familiar with the refinancing said the lenders had also extracted more advantageous fees "although the terms would not be penal (to CPP)".

Under a deal announced earlier this year, an extension to CPP's loans had given the company until September to find a longer-term solution, and this week's announcement is expected to provide it with breathing space until 2016.

CPP is one of several specialist insurers to have fallen foul of regulators in recent times. Homeserve (LSE: HSV.L - news) , which provides insurance against household mishaps, was also the subject of mis-selling allegations in 2011.

Concerns about potential exposure to any future evidence of mis-selling at Domestic & General, the warranties supplier, have thrown an obstacle in the way of its sale to a major private equity firm.

A CPP spokesman declined to comment on Monday evening.