OREANDA-NEWS. Fitch Ratings has downgraded Towergate Finance plc's (Towergate) Long-term Issuer Default Rating (IDR) to 'C' from 'CC'. Towergate's senior secured notes due 2018 have been downgraded to 'CC'/'RR3' from 'CCC-'/'RR3' and the senior unsecured notes due 2019 are affirmed at 'C'/'RR6'.

The downgrade of the IDR to 'C' follows Towergate's agreement with its senior secured creditors to implement a financial restructuring under a UK Scheme of Arrangement. If the restructuring plan under the scheme of arrangement is approved, upon completion, Fitch will downgrade the IDR to 'RD' (Restricted Default). Subsequently, Fitch will re-assess Towergate's IDR and assign a rating consistent with the agency's forward-looking assessment of the company's credit profile following the distressed debt exchange.

KEY RATING DRIVERS
The exchange offer launched on 2 February 2015 constitutes a distressed debt exchange under Fitch's criteria, because investors face a reduction in terms and the restructuring is conducted in order to avoid a traditional payment default. Fitch considers alternative options to be limited. We recognise the positive impact that the proposed agreement would have on the group's liquidity and debt service, given the reduction in leverage, extended maturity dates and lower cash interest payments.

Under the exchange, senior secured creditors will convert all of their existing claims to GBP375m of new senior secured notes, GBP150m of subordinated PIK notes and 100% of the ordinary share capital of the new group holding company. New money will also be injected in the form of new super senior notes to the amount of GBP75m.

RATING SENSITIVITIES
The completion of the proposed scheme of arrangement will lead to a downgrade of the Long-term IDR to 'RD'. Positive rating action may follow the implementation of an alternative capital structure arising out of the restructuring process.