Moody's downgrades Towergate

Moody's Investors Service said it downgraded Towergate Holdings II Ltd.’s corporate family rating to Ca from Caa3 and probability of default rating to C-PD from Caa3-PD, downgraded Towergate Finance plc’s senior notes to C (LGD6) from Ca (LGD5) and affirmed Towergate Finance’s senior secured notes at Caa2 (LGD2). The outlook is stable.

This rating action follows Towergate's announcement that it entered into a binding agreement with its senior secured bondholders to implement a financial restructuring and recapitalization of the group. The bondholders will convert their existing claims into £375 million of new senior secured notes, £150 million of subordinated payment-in-kind notes and 100% of the ordinary shares of the new holding company for the group. Additionally, the bondholders will provide £75 million of new super senior notes upon completion.

The downgrade reflects Moody's view that Towergate's announcement constitutes a distressed exchange for bondholders, which together with the group's intention not to pay its February interest coupons, is an event of default under Moody's definitions.

The agency said reduced leverage and enhanced short-term liquidity will improve the group's financial flexibility, but Moody’s expects this benefit to be partially offset by tough trading conditions in the United Kingdom, challenges associated with the group's change program and significant exceptional costs.

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