Interserve, one of the biggest suppliers of services to the UK government, has unveiled an emergency rescue plan that hands control of the business to its banks.
The company, which employs 75,000 people worldwide, including 45,000 in the UK, said on Wednesday that lenders had agreed in principle to a deal that would see shareholders effectively wiped out and left with just 2.75 per cent of the company.
The group’s most profitable division – RMD Kwikform, a supplier to the construction industry – will be kept within the company after the Cabinet Office objected to a plan by banks to spin the business off.
But the lenders – which include RBS, HSBC and BNP Paribas, as well as Emerald Asset Management and Davidson Kempner Capital – will have £350 million of debt secured against RMDK, meaning they could seize the division if the company ran into further difficulties.
The outline agreement follows months of fraught discussion on how to avert a Carillion-style collapse at Interserve, which generates 70 per cent of its turnover of £3.2 billion from the British government.
The company has been on the Cabinet Office’s watch list since early last year following disastrous forays into areas in which it had little expertise, including energy-from-waste plants and probation services.
The rescue plan faces multiple obstacles - including final approval from banks and shareholders. In a sign of differences over the business strategy, its largest shareholder Coltrane, a New York-based hedge fund that owns 17 per cent of the company, accompanied today's announcement with a call for a general meeting to replace the board with new directors, apart from Debbie White, the chief executive brought in to turn the ailing outsourcer around in September 2017.
Ms White said the agreement was a “significant step forward in our plans to strengthen the balance sheet . . . this proposal has been achieved following a long period of intensive negotiation and has the support of our financial stakeholders and government”.
Coltrane believes that the agreement was “rushed out in a panic”, according to one person close to the group, ahead of shareholders being consulted.
“The company is not facing collapse and yet shareholders have been totally ignored,” the person added.
Shares in Interserve rose 14 per cent after the news on Wednesday. But the company, which cleans the London Underground and maintains army bases, has a market value of just £17 million, compared with £500 million two years ago.
The agreement with lenders is the second rescue deal for the company in less than a year, after a refinancing was struck last March to help it cope with its mountain of debt.
The financial restructuring arrangement proposed on Tuesday would convert £480 million of existing debt to new equity to reduce borrowings to around £275 million, while the new equity would account for about 97.5 per cent of Interserve. The lenders will also offer an extra £75 million through a new debt facility that matures in 2022.
The crisis is the latest to hit Britain's troubled outsourcing sector, with Kier, Capita and Mitie also seeking to rebuild their balance sheets.
Kier, a rival construction and support services company, launched a £264 million emergency rescue rights issue last year as it warned that lenders were seeking to reduce lending to the sector. Although Kier’s cash call was fully underwritten, it left banks and brokers nursing almost £7 million in losses after shares in the business fell below the issue price. – Copyright The Financial Times Limited 2019
