The fight to save Saga from drowning under a mountain of debt

As champagne fell on the bow of the new Spirit of Discovery cruise ship in 2019, Saga's management team, flanked by the then-Duchess of Cornwall, was in high spirits.

The group celebrated a significant moment for the travel insurance specialist. The ship was one of two commissioned by Saga and was intended to herald better times for the business, which for decades offered holidays and insurance to millions of people over 50.

However, just a year later, the ship was stuck in port due to the Covid pandemic. Sky-high inflation and a cost of living crisis in subsequent years have compounded Saga's headaches and left the debt-ridden group stranded.

Saga is struggling with debts of £657 million that dwarf its market value of just over £160 million sterling.

High interest rates have left the bank scrambling to cut this borrowing pile rather than refinance at much higher rates.

Investment bank Lazard was brought in to help turn around Saga's financial position, and bankers revived plans to sell Saga's insurance underwriting business to raise cash.

However, while Lazard tries to save the business, the captain abandons ship.

< img src="/wp-content/uploads/2023/12/6f5230a12a87b5c99d49bffd47159ce7.jpg" /> Euan Sutherland to leave Saga January Photo: REUTERS/Luke McGregor

Euan Sutherland, who replaced Lance Batchelor as Saga CEO shortly after the launch of Spirit of Discovery, this week said a new face was needed for the next stage of Saga's development as he announced plans to remain in the role. down.

His departure and the state of Saga's finances have raised questions about the company's future: Can new management get the company back on track? Or will it fall into the hands of a competitor or return to private investment as its fortunes change?

Saga has long been an iconic British brand. Founded in 1951 by London-born Sidney De Haan as a Travel Agency for Senior Citizens, the company began life as an operator of package holidays taking retirees abroad just as the post-World War II holiday market was booming.

< p>Following the success of the cruises, the group moved into publishing in Saga Magazine and then into financial products such as insurance in the 1980s.

Increasing life expectancy and falling birth rates mean Britain is aging. This should be a golden period for the business, which caters to wealthy retirees looking for entertainment.

However, Saga shares have fallen more than 90% over the past five years due to concerns about its financial health.

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Baroness Ros Altmann, the former CEO of Saga, believes the brand has struggled to keep up with the changing image of its customers in recent decades.

“Saga would still be the only recognizable name if someone said: is the company aimed at older people?” says Altmann, who worked for the company from 2012 to 2014.

— “But the reality is that people between 50 and 70 years old, unless they are looking for a specific type of cruise vacation, are unlikely to think that Saga represents them or speaks to them directly.”

According to Altmann, Baby boomers are living longer and healthier than previous generations, but Saga's marketing companies don't take that into account.

«Saga magazine has always been full of mobility aids, wheelchairs, baths and showers — people in their 60s and 70s don't want to be associated with that.»

Altmann says insurance was the main driver of growth companies in recent years rather than «fun» activities such as cruises. — but a mountain of debt was hampering the company's growth.

“What you need to do is invest a lot of money for a longer-term payback, and if you have huge debts, you will have to constantly service them. It’s very difficult.”

Former Saga chief executive Baroness Ros Altmann says insurance has been a major driver of the company's growth in recent years. Photo: Graham Turner/Guardian

The company is also currently grappling with rising claims costs as inflation rises. The fall in stock prices continues, with shares down 17% this year.

The root cause of all ills is debt. Despite its staid image, Saga was once the plaything of private equity magnates and Wall Street bankers, who merged the company with AA in a pre-crisis debt binge.

When it re-emerged as a stock market company in 2014 received a whopping £2 billion valuation, but its debt has left it vulnerable to the winds of change.

Sutherland is being replaced as Saga's new chief executive by his chief deputy, finance director Mike Hazell. Head of Development Mark Watkins has been appointed Chief Financial Officer.

A City analyst who follows the company says, «The next step for the new CEO and new CFO is to figure out how to restore the debt position to sustainable levels.» a more acceptable level.»

Saga's collapse in valuation could fuel speculation that it could be the target of a possible takeover bid as foreign buyers swoop in for unloved British assets.

But sky-high debts make this unlikely: any buyer would also be forced to repay all of these loans.

“There is no natural trade buyer for this business,” the analyst says. “Whoever takes over the management of this business will take on the debt. The poison pill is the company's financial structure.»

The presence of chairman Roger De Haan, the son of the company's founder, who owns a quarter of the business, will also complicate any deal.

For now, the ability to repay the debt appears certain. The bonds, due next May, are expected to be repaid. De Haan also loaned the company £85 million to ease tensions and increase financial flexibility.

However, the long-term viability of a business with so much debt relative to such a small valuation remains in question. New management at Saga and Lazard must find a solution to restore balance.

The potential sale of the insurance underwriting business could herald a breakup. But De Haan may be reluctant to let go of the empire his father built.

Meanwhile, the Spirit of Discovery is back on the water and cruise bookings are strong. The champagne is frozen, but Saga's new management hopes it will start flowing again soon.

Saga declined to comment.