insurer Phoenix yesterday unveiled plans to raise £250m in a share issue, enabling it to pay down some of its £2.4bn debt pile and raising the prospect of a return to the acquisition market.
Chief executive Clive Bannister said the deal – first disclosed in yesterday’s City A.M. – transforms Phoenix by removing the “existential threat” of having to pay back £1.9bn of debt by 2016.
“The clouds of uncertainty have been removed,” Bannister said, adding that his company can now look to purchase more businesses.
“Unless we consolidate more we would go inexorably into run-off. We could not conceive of doing acquisitions had we not retermed our debt. That door is now open – we are back in the saddle,” he told City A.M.
The FTSE 250 company, formerly known as Pearl, has carried heavy debts since it purchased Clive Cowdery’s Resolution in 2008.
Closed-book life insurers do not accept new business but instead buy portfolios of existing policies, charging premiums until the policies mature and combining the businesses to save on costs.
Hedge fund Och-Ziff has agreed to buy £80m of the issue, with the rest available in an open offer. The proceeds will be combined with company cash to pay down £450m of debt.
The maturity date for the crucial £1.4bn of Resolution-related debt will be extended until June 2019.
Yesterday shares in company rose by 6.6 per cent and Phoenix expects its final dividend to rise by 27 per cent to 26.7p as a result of the deal.
Yesterday’s debt issue by Phoenix was structured in a unusual manner, with new shareholder Och-Ziff underwriting part of the transaction – and receiving a guaranteed £8m of fees in return.
“Och-Ziff fully underwrote the deal, enabling us to negotiate better terms,” chief executive Clive Bannister explained.
Deutsche Bank and JP Morgan acted as joint brokers on the deal but will only receive 0.75 per cent of the 1.75 per cent fee, with the remaining one per cent shared among Phoenix’s shareholders, including Och-Ziff, TDR Capital and Sun Capital.
JP Morgan’s team included Conor Hillery and Tim Wise, while Deutsche’s bankers included James Agnew and Mike Lamb.
Sun Capital, led by Phoenix founder and board member Hugh Osmond, played a central role in the renegotiation and introduced Och-Ziff to the company. The entire deal took almost a year to put together, with the process made easier by the involvement of a single underwriter.