A day after Tower Group International Ltd. disclosed “substantial doubt about the company’s ability to continue as a going concern,” a letter from the carrier’s CEO reassured business partners that its obligations will be met.
The letter dated Nov. 15 and signed by Michael H. Lee, chairman, president and chief executive officer, says Tower was bound by accounting rules to issue the press release indicating the doubtful going-concern status even though the company believes that it will repay $70 million of borrowings under a credit facility due May 30, 2014.
The disclosure about Tower’s doubtful status came in a Nov. 14 press release, which also said that Tower was restating several previously filed audited financial statements and that those statements “should no longer be relied upon.”
In the subsequent letter, Tower said it might sell some holding company or operating company assets to meet its repayment obligations, or that it could possibly raise additional capital. But because there are presently no binding commitments for either sales or capital raises, “we were required to include in the release the statement that ‘there is substantial doubt about the Company’s ability to continue as a going concern,'” the letter says.
“We believe we will be able to meet all of our obligations, including to our policyholders as well as to our lenders,” Lee’s letter continues, referring to the fact that even after the previously announced reserve strengthening and goodwill impairment, shareholders’ equity as of June 30, 2013 stood at $579 million, and consolidated surplus at $493 million.
The letter, which was furnished in an SEC Form 8-K report, begins by noting that the company received questions about Tower’s plans to repay the credit facility from the “valued business partners” to whom the letter is addressed.
“Given the heightened sense of interest and concern regarding our second-quarter earnings release and our recent disclosures, I wanted to provide you with this additional explanation. You deserve this clarification,” the letter says.
“It is our belief that but for the current absence of a binding commitment with respect to potential asset sales or capital raising, the proceeds of which would be used to repay the debt obligations, we would not be subject to the ‘going concern’ qualification,” the letter says.
The letter went on to assure the readers that Tower’s board of directors and the senior management team have been working diligently to file the company’s second- and third-quarter financial statements, which were delayed for loss reserve work, while also working to meet outstanding obligations.
“Until we have addressed the current situation, I personally plan to take a much more proactive approach to reach out to all of you to communicate further,” Lee promises in the letter.