TIDMCPP
RNS Number : 5229C
CPPGroup Plc
17 April 2013
Proposed Disposal and amendment and extension of Bank
Facility
17 APRIL 2013
Overview
CPPGroup Plc ("CPP" or the "Group") today announces an agreement
to sell its North American business (subject to approval by CPP's
Shareholders and the satisfaction of other, customary closing
conditions) to AMT Warranty Corp. (the "Disposal") for a total cash
consideration of $40 million (approximately GBP26.1 million) and
that it has agreed a further extension of its Existing Bank
Facility on amended terms with its existing lenders (the "Amended
Facility").
The Disposal and the Amended Facility are expected to provide a
period of time up to 30 September 2013, for the Group to engage in
further discussions with its existing lenders and the Group's major
shareholder, Mr Hamish Macgregor Ogston CBE, with a view to
refinancing the Amended Facility on a longer term basis and
providing some additional working capital for the Group.
The Disposal is part of a series of related measures being
pursued by the Board with a view to securing the future viability
of the Group in the interests of all stakeholders. Notwithstanding
these measures, the Group is likely to continue to face significant
financial challenges in the short to medium term, especially given
the pending redress programme, the need to refinance the Amended
Facility prior to its expiry and the required repositioning of the
Group's business model.
In the course of its strategic review, the Board has reached the
conclusion, on the basis of the facts currently available, that the
Disposal, in conjunction with the Amended Facility, represents the
only viable means of enabling the Group to move forward.
The North American business
CPP's North American business, operated by CPPNA Holdings, Inc.
("CPP North America"), was established in 2003 through the
acquisition of the enhancement services division of Metris Inc., a
medium-sized credit card issuer based in the United States. Since
then, the business has developed through focused product
development and working with major organisations in the financial
and retail sectors and provided 13.2 per cent of Group revenue as
reported in the Group's audited consolidated financial statements
for the year ended 31 December 2011. Products sold by CPP North
America include identity protection and life assistance products
under the brands IdentityProtector, PurchaseShield 360, Lifestyle
Perks, Preferred Program and Sage 365.
CPP North America reported profit before taxation of GBP6.8
million for the year ended 31 December 2011 and GBP5.2 million for
the six months ended 30 June 2012. At 30 June 2012, CPP North
America had gross assets of GBP23.4 million.
Background to the Disposal and Amended Facility
Disposal
As a result of the impending maturity of the Existing Bank
Facility, the phased payment of the penalty agreed with the
Financial Conduct Authority ("FCA") (or, as the context may
require, the Financial Services Authority as predecessor entity
thereto prior to 1 April 2013) in relation to historical failings,
the associated costs relating to the FCA investigation, the
significant uncertainty relating to the extent of the Group's
liabilities in relation to customer redress, and the on-going costs
in relation to implementing customer redress, the Directors
determined that strengthening the Group's capital structure was
essential.
Given the urgent requirement to raise financing, the limitations
on the Group's ability to raise new finance as a result of the
terms of the voluntary variations of permission ("VVOPs") and the
uncertainty over the Group's ability to secure funding from its
Lenders or third parties on the maturity of the Existing Bank
Facility, the Board initiated a strategic review of the Group to
analyse which parts of the Group were potentially separable and
saleable.
The Board concluded that, of those parts of the Group's business
identified for potential disposal, CPP North America was likely to
be attractive to potential purchasers and attract a valuation in a
range that would assist the Group in repaying the Existing Bank
Facility. The Board therefore launched a broad sale process for CPP
North America, soliciting competing bids from a number of
interested parties. Having determined during the course of this
sale process that the value to be realised through the Disposal
would not be sufficient to repay the Existing Bank Facility in
full, the Board has explored a broad range of alternative financing
and strategic options for the Group, including extending the
current cash conservation and cost management exercise throughout
the business, seeking to obtain additional equity financing,
seeking to obtain new debt financing and the disposal of other
assets of the Group. The Board's active engagement with the Lenders
and with other potential providers of debt or equity financing
(including Mr Hamish Macgregor Ogston CBE) has culminated in the
negotiations that have resulted in the Amended Facility.
It is proposed that GBP16.5 million of the expected net proceeds
from the Disposal will be used to prepay part of the Amended
Facility. The remaining net proceeds from the Disposal and the
GBP25 million in funds available under the Amended Facility will be
used to provide additional working capital. Following completion of
the Disposal, the Group will no longer receive the revenue and
profit generated by CPP North America and accordingly the Group's
total consolidated revenue and operating profit are expected to
decline.
Given the size of the North American business relative to that
of the Group, completion of the Disposal is conditional upon the
approval of CPP's Shareholders. Shareholders' approval will be
sought at a General Meeting, details of which will be included in
the circular to be published by the Group in due course.
Amended Facility
On 16 April 2013 the Group and the Lenders entered into the
Amended Facility Agreement to amend and extend certain terms of the
Existing Bank Facility, including the extension of the term of the
Existing Bank Facility until 30 September 2013.
As part of this extension, the majority of the net proceeds from
the Disposal, totalling GBP16.5 million, must be used to prepay
part of the Amended Facility. The remainder of the Amended
Facility, totalling GBP25 million, has a final maturity date of 30
September 2013.
The Amended Facility was made available on the condition that
the Group entered into the Disposal Agreement and if the Disposal
does not complete by 31 May 2013 or another event of default occurs
under the Amended Facility Agreement, the Amended Facility will
become immediately repayable. The Amended Facility may also cease
to be available if the Group fails to comply with its agreed
covenants including, without limitation, certain covenants relating
to cancellation rates and a covenant which requires the Group to
maintain a minimum balance of GBP12 million in a blocked account
that is secured in favour of the Lenders.
Potential Financing Arrangements and Possible Offer
The Group intends to engage in further discussions with the
Lenders and Mr Hamish Macgregor Ogston CBE with a view to putting
in place a funding plan for the Group following expiry of the
Amended Facility (the "Potential Financing Arrangements"). The
quantum of the Potential Financing Arrangements is expected to
exceed the GBP25 million of the Amended Facility. As yet, there has
not been any agreement with the Lenders or Mr Hamish Macgregor
Ogston CBE on the terms on which any funding under the Potential
Financing Arrangements may be made available and there can be no
certainty that any such future funding will be available or will be
sufficient for the Group's needs.
As a result of the difficult financial situation of the Group,
CPP has explored a number of options and has been engaged for some
time in discussions with the Lenders, Mr Hamish Macgregor Ogston
CBE and others concerning the financing requirements of the Group.
These discussions led to a request being made to the Lenders and Mr
Hamish Macgregor Ogston CBE to consider whether they would be
willing to provide a refinancing solution for the Group. In
response to such request, Mr Hamish Macgregor Ogston CBE indicated
that he would, subject to certain pre-conditions and limitations,
be willing to participate with the Lenders, in the Potential
Financing Arrangements.
Mr Hamish Macgregor Ogston CBE further indicated that his
willingness to participate in the Potential Financing Arrangements
would be subject to a number of pre-conditions which would need to
be satisfied or waived by him.
For further information in relation to the Potential Financing
Arrangements and a possible offer for the CPP Shares, please see
the announcement released by the Group today pursuant to Rule 2.4
of the City Code on Takeovers and Mergers and the circular to be
published and distributed to Shareholders in due course.
Paul Stobart, Chief Executive Officer, commented:
"The Board has given extensive consideration to a broad range of
strategic and financing options and believes the proposed disposal
of CPP North America to be in the best interests of CPP and its
stakeholders. Together, the proposed disposal and amended facility
are expected to assist in stabilising the business and allow the
Board to engage in further discussions with our Lenders and the
Group's major shareholder with a view to securing the future
viability of the Group.
"Whilst our performance continues to be affected by the on-going
challenges of our operating environment, we are well advanced in
implementing an extensive business transformation programme. These
significant organisational changes, combined with the on-going
demand we see for our products, are expected to provide the Group
with a platform to move the business forward."
Expected Timetable
The expected timetable for the principal events is set out
below:
Announcement of the Disposal 17 April 2013
Latest time and date for receipt of Forms of Proxy from Shareholders 10am on 1 May 2013
General Meeting 10am on 3 May 2013
Expected date of Completion of the Disposal on or before 7 May
2013
Longstop date for Completion of the Disposal 31 May 2013
Circular to shareholders
A circular containing further details on the Disposal and the
Amended Facility and the notice of the General Meeting at which the
resolution required to approve the Disposal will be proposed (the
"Circular") will be sent to CPP's Shareholders in due course. A
copy of the Circular, which should be read in conjunction with the
full text of this announcement, will be available on the Group's
website at www.cppgroupplc.com and via the National Storage
Mechanism in due course.
Customer redress
The Group has acknowledged the past failings at its UK business
in the period from January 2005 to March 2011 and has agreed to
carry out a customer redress exercise in relation to direct sales
(and subsequent renewals) of Card Protection and Identity
Protection products since 14 January 2005 and to pay redress to
customers where appropriate.
The Group has continued to have constructive discussions with
the FCA and with certain of the Group's larger Business Partners,
regarding the form, structure, details and timing of customer
redress. These discussions include consideration of the use of a
court-sanctioned solvent scheme of arrangement (the "Scheme") as a
mechanism for providing such redress to some customers.
It is currently expected that the Scheme will provide a
mechanism for reviewing claims and, where appropriate, paying
redress and that under the terms of such a Scheme, the Group will
only be responsible for redress paid under the Scheme to customers
to whom it sold the products directly. The Scheme is highly
innovative in terms of providing redress of this kind and on this
scale to retail customers with contributions to the overall redress
cost being made by multiple parties. At present, it is not certain
that the Group will ultimately proceed with launching the Scheme.
Assuming that the Scheme is launched on the basis contemplated by
the Group's discussions with the FCA and certain of its larger
Business Partners to date, the Directors currently expect it will
become effective in the fourth quarter of 2013.
As announced on 15 November 2012, the Group's provision for
customer redress and associated costs (which comprises anticipated
compensation payable to customers through customer redress
exercises, regulatory penalties, and other costs and professional
fees associated with the customer redress exercise) had risen to
GBP33.4 million (unaudited) as at that date. The Group announced in
its pre-close statement dated 19 December 2012 that it expected to
materially increase this provision in light of current estimates.
The Board expects that the provision recognised in the Group's
financial statements for the year ended 31 December 2012 for
customer redress and associated costs will, when published, be
GBP51.7 million (unaudited), of which GBP17.8 million has been used
and GBP33.9 million remains to be used as at the date of this
announcement. Whilst this reflects the Group's latest view on this
matter, the Group continues to review the provision on an on-going
basis.
Due to the timing of the Scheme it is likely that the total
amount payable by the Group under the Scheme will not be finally
determined until approximately the fourth quarter of 2014 at the
earliest.
Based on consideration of a number of matters, factors and
assumptions, the Board currently believes there is a reasonable
prospect that the rate of responses leading to successful claims
will be less than 25 per cent. of the aggregate overall population
of potential claimants under the Scheme. There can be no certainty
in relation to the rate of responses leading to a successful claim
under the Scheme and it is possible that the rate of such responses
may be materially higher or lower than currently anticipated.
In addition to the costs of the customer redress exercise and
the final amount of any redress paid out, the Group's book of
renewal business may experience a material degradation as a result
of the cancellation or non-renewal of live policies arising from
the FCA investigation and the customer redress exercise. Any such
material degradation would have a significant adverse impact on the
Group's revenue and profit going forward.
Current Trading and Prospects of the Continuing Group
As noted in CPP's pre-close announcement dated 19 December 2012,
the Group continued to trade profitably on an underlying basis
during 2012. As previously indicated, it is expected that the
Group's revenue and underlying operating profit for the 2012
financial year as reported in its Annual Report and Accounts will
(when published) show a decline, principally as a result of reduced
new and renewal retail revenue streams in the UK.
Trading in the UK in the first three months of 2013 has
continued to be impacted by lower revenue streams due to the
Group's restricted ability to sell its full range of products. The
loss of business due to the decision by certain of the Group's
Business Partners not to renew certain contracts is expected, in
combination with certain other factors affecting the Group's UK
business such as increased costs relating to redress and the
decline in UK revenues as a result of the restrictions under the
VVOPs, to have a substantial adverse impact on the Group's business
in 2013 and beyond.
In the Group's international operations, Latin America continues
to grow revenue. Performance in Southern Europe continues to
decline and although Asia Pacific has returned to revenue growth,
as a consequence of challenging trading conditions this market is
taking longer to develop than expected.
The current outlook for the Group reflects the significant
challenges and uncertainties that the business is facing. The Group
is considering the most appropriate approach to reduce its cost
base to mitigate some of the adverse profit impact from lower
revenue and in addition, redress-related costs.
Enquiries:
CPPGroup Plc
Paul Stobart, Chief Executive Officer
Shaun Parker, Chief Financial Officer
Tel: +44 (0) 1904 544 372
Helen Spivey, Head of Corporate and Investor Communications
Tel: +44 (0) 1904 544 387
Sponsor
Greenhill & Co. International LLP
Anthony Parsons
Hugo Grimston
Tel: +44 (0) 20 7198 7400
Media
Tulchan Communications
John Sunnucks
Martin Robinson
Tel: +44 (0) 20 7353 4200
Notes to Editors
CPPGroup Plc (CPP) is an International Assistance business
operating in the UK and overseas with more than 200 Business
Partners worldwide. Via its Business Partners, CPP provides Life
Assistance products to consumers, which includes annually renewed
and packaged products that provide assistance and insurance across
a wide range of market sectors designed to make everyday life
easier to manage.
For more information on CPP visit www.cppgroupplc.com
AMT Warranty Corp. is a Delaware corporation and wholly owned
subsidiary of AmTrust Financial Services, Inc., which is traded on
the NASDAQ Global Select Market.
AmTrust Financial Services, Inc. underwrites and provides
property and casualty insurance in the United States and
internationally to niche customer groups. AmTrust Financial
Services, Inc. product mix includes, primarily, workers'
compensation, extended warranty and other commercial
property/casualty insurance products. AMT Warranty Corp. through
its wholly-owned subsidiaries, designs, develops, markets and acts
as a third-party administrator for programmes for service
contracts, limited warranties and replacement plans.
IMPORTANT NOTICE
Greenhill & Co. International LLP, which is authorised and
regulated in the United Kingdom by the Financial Conduct Authority,
is acting exclusively for CPPGroup Plc and no one else in
connection with the Disposal and will not be responsible to anyone
other than CPPGroup Plc for providing the protections afforded to
clients of Greenhill & Co. International LLP or for providing
advice in relation to the Disposal or any other matter referred to
in this document.
This announcement includes statements that are, or may be deemed
to be, "forward-looking statements". These forward-looking
statements can be identified by the use of forward-looking
terminology, including the terms "believes", "estimates", "plans",
"prepares", "anticipates", "expects", "intends", "may", "will" or
"should" or, in each case, their negative or other variations or
comparable terminology. Such forward-looking statements involve
known and unknown risks, uncertainties and other factors which may
cause the actual results, performance or achievements of the Group,
or industry results, to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such forward-looking statements are
based on numerous assumptions regarding the Group's present and
future business strategies and the environment in which the Group
will operate in the future. These forward-looking statements speak
only as at the date of this announcement. Except as required by the
Financial Conduct Authority, the Listing Rules, the Prospectus
Rules, the Disclosure Rules and Transparency Rules, the London
Stock Exchange, applicable law or relevant regulation, the Group
expressly disclaims any obligation or undertaking to release
publicly any updates or revisions to any forward-looking statements
contained in this announcement to reflect any change in the
Company's expectations with regard thereto or any change in events,
conditions or circumstances on which any such statement is
based.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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