21 November 2014 Insurance

Fitch & Moody's downgrade Towergate

Rating agencies Fitch and Moody's have both downgraded UK broker Towergate and placed the rating on negative watch.

Fitch has downgraded Towergate’s long-term issuer default rating (IDR) to ‘B- ‘from ‘B’. Its senior notes, due 2018, have been downgraded to 'BB-'/'RR1' and senior notes, due 2019, downgraded to 'CCC+'/'RR5'. They have also been placed on negative watch.

Fitch said the downgrade reflects growing uncertainty concerning Towergate's ability to improve short-term operational cash flow and maintain sufficient liquidity moving into 2015.

Moody's downgraded Towergate’s corporate family rating (CFR) and probability of default rating of Towergate Holdings II Limited by one notch to Caa1 / Caa1-PD. All ratings have been placed on review for further downgrade.

“Free cash flow has remained under sustained pressure during 2014, primarily due to costs incurred as part of the group's strategic reorganisation. Organic revenues declined in the third quarter of 2014 (3Q14) while Towergate's ability to grow through acquisitions looks increasingly challenged, given the limited sources of capital available to the company,” said Fitch.

Rating agency Moody's said: “The ratings have also been placed on review for downgrade to reflect the uncertainty surrounding: (1) the Group's ability to renegotiate its bank covenant; (2) the execution risk associated with the disposal of non-core assets and other management actions to restore short term liquidity; and (3) the timing and magnitude of further restructuring costs and benefits.”

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