The largest shareholder in debt-laden Interserve has described new financial restructuring plans put forward by the government contractor as “terrible” and warned it is prepared to sue the company’s board and lenders if rescue talks fail and the company falls into administration.
Interserve, which employs 45,000 people in the UK, is at the centre of an increasingly acrimonious showdown over its future, just a year after fellow outsourcer Carillion collapsed into administration.
Interserve said the restructuring plan was “critical to our future”, warning it would run out of cash unless investors wave through the plan at a vote on 15 March.
The company has hundreds of public sector contracts, which include running the probation service, hospital cleaning and school meals.
On Wednesday it published full-year figures showing fresh annual losses of £111m, and details of the “critical” financial rescue package designed to slash its £632m debt pile.
The financial statements also revealed that Interserve expects to spend £76m on advice relating to its financial restructuring – a sum equivalent to about three times the firm’s stock market value.
Interserve’s largest shareholder Coltrane is understood to be angry about the sums spent by the company on advice and has expressed fierce opposition to its restructuring plans.
Under proposals drawn up by Interserve’s lenders, they would cancel £485m of debt in exchange for £435m of new stock. Shareholders would be left with just 5% of the company. They would have the right to buy new shares back from the lenders, but only up to 33.3%.
Interserve has a vast number of public sector contracts in the UK in areas such as school meals, hospital cleaning and probation services. It has also worked on road projects on the M5, maintains some of Britain’s busiest railway stations, and cleans more than 2,000 London Underground carriages every evening.
Interserve in numbers
45,000 Number of UK employees
700 The number of schools where it provides catering services
40,000 The number of medium- to low-risk offenders on probation that Interserve supervises
150 The number of BBC sites, including Salford Media City, where Interserve provides total facilities management
£227m The value of a five year contract for providing office management, catering and waste disposal at 700 DWP sites across the UK
A63 The new footbridge crossing the road at Princes Quay in Hull, used by 45,000 people a day, is one of many construction projects Interserve is running across the UK
£25m Interserve’s part of a contract to redevelop the Prince Charles Hospital in Merthyr
600,000 The number of visitors to Edinburgh Zoo, where Interserve does the cleaning, security, park presentation, waste disposal and washroom services.
£250m The sum paid by Interserve to buy Initial Facilities from Rentokil Initial in 2014, adding more than 25,000 new employees to the group.
51 The number of years that Interserve will hold the concession to build and run two new colleges at Durham University
The lenders, which include hedge funds and banks, would also provide a £110m new debt facility that comes due in 2022, at interest rates understood to be a third of those attached to the company’s existing loans.
EY has been lined up to manage a pre-pack administration if the lenders lose the vote, which requires approval from investors holding 50% of the company to pass.
Coltrane and fellow shareholder Farringdon are thought to wield enough voting power between them to thwart the plan.
A source close to Coltrane, which has put forward alternative proposals based on a share issue that it has offered to guarantee, indicated that the US hedge fund was unlikely to accept Interserve’s latest plan.
Coltrane is understood to have appointed legal advisers to consider a lawsuit against the company and the lenders, should the firm collapse into administration.
Coltrane has also been angered by Interserve’s admission that it will have spent £76m on advice for its financial restructuring plans and the fact that directors have said they would not invest any of their own money buying the new shares.
“[The directors] are recommending a deal on which they personally are not taking up their rights. This is very rare and shows the plan is terrible.”
“The truth is out – this is all about creditors holding a gun to the company’s head with management itself not taking part.”
Chief executive Debbie White declined to say why she and fellow directors were not prepared to take up their rights to buy new shares with their own money.
She insisted that the company’s underlying performance was robust and said she would be seeking to convince shareholders including Coltrane that the debt-cutting plan was the best option for the business.
On Friday, Coltrane submitted a counter-proposal that would see lenders share more of the pain of the financial restructuring with shareholders.
Coltrane’s plan would give only 65% of the company to creditors in exchange for £436m of debt, leaving shareholders with an improved 10% of the equity, plus the opportunity to participate in a 25% rights issue worth £75m. Coltrane would underwrite the rights issue.
The hedge fund is considering adjusting the proposal in the light of Interserve’s full-year results, which were issued alongside details of the debt-cutting plan. The results showed that Interserve has slashed its pretax losses from £244m to £111m. However, net debt has continued to rise, reaching £632m.
Interserve’s largest customer is the government. The Cabinet Office, which oversees public sector contracts, is understood to be supportive of the rescue plan.
