Tower Group International, Ltd. (Tower) announced Tuesday that it has paid $70 million that was outstanding to its Bank of America credit facility using proceeds from the sale of a stake in Canopius Group Limited.
Tower Group, Inc., a wholly owned subsidiary, closed on the Dec. 13, 2013 sale to an investment fund managed by Bregal Capital LLP (“Bregal”), Tower said, noting that the initial sales price for the Canopius shares is $69.7 million (£42.5 million), which has been paid in full to Tower.
The sale of the Canopius shares permits Tower’s board to continue its strategic evaluation of various alternatives without any current liquidity concerns arising from its former bank credit facility, while also permitting Tower to participate in any future transaction involving the sale of Canopius that occurs within the next six months, Tower said in a statement.
Tower also stated that it anticipates strengthening of its loss reserves in the third quarter in an amount between $75 million and $105 million primarily in workers compensation, commercial multi-peril liability, other liability and commercial auto liability lines of business.
Tower also announced that it expects its U.S. combined statutory surplus, net of cessions to its Bermuda affiliate, to drop to somewhere between $315 million and $335 million at Sept. 30, 2013 from $374 million at June 30, 2013.
Tower said it is still in the process of preparing its statutory financial filings, but it anticipates filing its statutory financial statements for the third quarter by the end of 2013.
Michael H. Lee, President and Chief Executive Officer, said, “With the sale of our interest in Canopius, we were pleased with our ability to repay our $70 million debt and improve our financial flexibility. While we are disappointed in the additional reserve strengthening, we believe our statutory capital remains sufficient to meet all of our financial obligations.”
With respect to the Canopius transaction, Tower reported that as part of Tower’s agreement to sell its shares, if a legally binding contract for the sale or other transfer of shares representing a majority of the voting power of Canopius is entered into within six months after the date of Tower’s stock purchase agreement with Bregal, a further cash payment would be made by Bregal to Tower.
This additional cash payment would be equivalent to the excess, if any, of (1) one-third of the difference between the amount in GBP paid for the shares previously owned by Tower in such sale and £40.6 million (plus Tower’s share of expenses of such sale), minus (2) £1.95 million.
Tower purchased its 10.7 percent equity stake in Canopius in August 2012 for $71.5 million. Canopius is the privately-owned Guernsey (Channel Islands) domiciled parent company of the Canopius Group, an international insurance and reinsurance group with operations at Lloyd’s of London and in certain other countries around the world.
Source: Tower Group International, Ltd.