Updated: 26.06.2020;
Further to its 22 June 2020 announcement, The Ardonagh Group (“the Group”) announces that on 25 June 2020 it priced the offering of $500 million in aggregate principal amount of Ardonagh Midco 2 plc’s 11.50% / 12.75% senior PIK toggle notes due 2027 (the “Notes”). The Notes priced at an issue price of 99% and have a coupon of 11.50% for cash interest and 12.75% for interest paid in kind. The Notes are expected to be issued on 14 July 2020.
David Ross, Chief Executive of Ardonagh, commented:
“The scale of this transaction and the blue-chip investors who have supported are a strong endorsement of everything the company has worked towards for the last three years. These international investors have backed our ambitions and are supporting our strategy after months of conversations spanning a period of unprecedented global volatility. We believe that this transaction gives us the right capital structure and additional financial firepower to take the company forward, never forgetting our independence and culture.”
The Ardonagh Group has announced an offering of its $500 million senior PIK toggle notes due 2026. The proceeds of the Notes, together with drawings under a new senior secured term loan facility of £1,575 million (equivalent), will be used;
(i) to redeem the Group’s £553,300,000 8.375% senior secured notes due 2023, USD $520,000,000 8.625% senior secured notes due 2023 and USD $235,000,000 8.625% senior secured notes due 2023 (the “Existing Notes Redemption”);
(ii) to repay drawn amounts under the existing revolving credit facility agreement;
(iii) to fund the acquisitions of Nevada 4 Midco 1 Limited (holding company of Bravo Investments Holdings Limited) and Nevada 5 Topco Limited (holding company of Arachas Topco Limited) from funds managed by HPS Investment Partners (“HPS”), LLC and Madison Dearborn Partners (“MDP”), LLC, and to fund the acquisition of Bennetts Motorcycling Services Ltd;
(iv) to pay the fees and expenses incurred in connection with the foregoing transactions, including fees and expenses incurred in connection with the Offering, repayment of existing debt of the targets, costs related to the acquisitions and redemption costs including accrued interest incurred in connection with the Existing Notes Redemption; and
(v)for general corporate purposes.
Established in 2017, The Ardonagh Group grew significantly through a series of acquisitions in 2018 that brings together leading insurance brands in the U.K. including Autonet, Bishopsgate, Carole Nash, Geo Underwriting, Price Forbes, Swinton, Towergate, Bennetts and URIS.
The Bennetts deal was announced earlier this year and consolidates Carole Nash and Bennetts, who are arguably the two biggest names in motorcycle insurance in the UK. As the biker fanbase ages, and many give up two wheels, there will be less lucrative business within the sector and both brands will need to revamp their offer to a more PAYG model, that suits commuters and occasional Sunday leisure riders.
With more than 100 office locations and a workforce of over 6,000 people, The Ardonagh Group is active across distribution, wholesale, underwriting and services, forming the largest principal diversified and independent broking and underwriting group in the U.K.
SHOW ME THE MONEY
Ares Management Corporation (“Ares”) (NYSE:ARES) announced that it is serving as the lead arranger for a £1.875 billion financing commitment to The Ardonagh Group (“Ardonagh”), the U.K.’s largest independent insurance broker, through Ares’ global direct lending platform. Ardonagh is majority owned by HPS Investment Partners (“HPS”) and Madison Dearborn Partners. In addition to direct lending funds managed by Ares, other significant lenders include Caisse de dépôt et placement du Québec (“CDPQ”), HPS and KKR.
FITCH RATINGS UPDATE
Following the Ardonagh notice, Fitch ratings agency issued the following statement to stock market newswires;
Fitch Ratings – London – 22 Jun 2020: Fitch Ratings has downgraded Ardonagh Midco 3’s (Ardonagh) Long Term Issuer Default Rating to ‘B-‘ from ‘B’. The Outlook is Stable. We have also assigned a ‘CCC(EXP)’ rating to the proposed GBP400 million equivalent U.S. dollar- denominated senior PIK (payment-in-kind) toggle notes due 2026. A full list of rating actions is below.
The downgrade of Ardonagh follows the total GBP2 billion refinancing of its debt structure enabling the company to fund the acquisitions of the Bravo Group (Bravo) and the Arachas Group (Arachas). Funds from operations (FFO) gross leverage is expected to remain above 7.0x for at least three years under our assumptions, above our thresholds for the previous ‘B’ rating.
The Stable Outlook reflects our expectation that continued cost savings, synergies and healthy free cash flow (FCF) will all support sufficient organic deleveraging. With a new revolving credit facility (RCF) and new delayed draw facilities both expected to be undrawn at closing we expect Ardonagh to have good liquidity.
The ratings of Ardonagh’s existing debt facilities will be withdrawn when they are repaid as part of this refinancing.
MORE BROKER BUYS IN THE FUTURE? HELL YES
There’s no doubt that there is plenty of room within the UK broker sector for more consolidation, mergers and formal partnerships. Some brands may vanish as margins get tighter and consumers demand more professional online experiences, or take their business elsewhere.
GRP have been on a long shopping spree for the last three years and seem keen to carry on. Davies Group seems hungry for more, and interestingly has acquired Keoghs law firm too. The savings in applying cloud-based, automated tech, across niche broker brands – and those in the legal/claims sector – are huge, and some might say, inevitable. Then there’s the downturn in Commercial Lines as the High Street contracts and business takes a post-Corona hit.
Very interesting times ahead.
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