Interserve finally got a break last week when it announced it had reached an agreement on new financial terms with its lenders.
The firm got hold of £196.6m in new lending facilities and extended the duration of its existing borrowings to 2021.
But the details didn’t inspire unconditional relief.
Interserve’s new facilities take total borrowing to £834m, compared with £640m in its last published accounts covering 2016.
These new loans come at a hefty price, too. Interserve’s interest cost this year will be around £56m; in 2016 it was half that at £23.3m.
A back-of-an-Easter-egg-box calculation shows while its borrowing has increased 30 per cent since 2016, its interest costs have rocketed 140 per cent. Ouch.
While the facilities may last until 2021, the lenders appear nervous about the short term – hence the whopping interest charge.
Interserve needs to start de-leveraging soon – it can’t afford to shell out £56m a year in interest for long – and to do that, the business needs to stymie its losses and get cash coming in.
An announcement by Pennon on Tuesday showed why this may not be easy.
In its results for 2017, Pennon revealed the cost of its Glasgow energy-for-waste facility had increased £95m and that claims could be made against Interserve – the contractor on the job until it was removed in November 2016 – to recover this.
Interserve declined to comment on Pennon’s figure and said it had its own view on the costs.
The contractor is desperately trying to get out of the EfW business – its experience having been nothing short of disastrous.
However, Pennon’s announcement shows Interserve still faces serious battles on that front before it can be completely EfW-free.
The contractor’s 2017 results – due out last Tuesday but now pushed back to the second half of April while it finalises its financing agreements – may give us a better picture of just how much further pain it expects from EfW projects.
So while the finance deal is good news for the company and gives it one less immediate thing to worry about, Interserve has – as someone more familiar with the deal put it to me – “just kicked the can down the road”.
The fundamental problems of big costs, big debts and finding the cash to cover them are still apparent.
Chief executive Debbie White is trying to address this with the Fit for Growth plan, but if that doesn’t start bearing fruit soon then it looks like the banks have a contingency plan.
As part of last week’s finance agreement, the lenders have been given an option to buy Interserve’s shares at 10p each (they are currently trading at around 82p).
Interserve says if the lenders exercise this option they will gain a 20 per cent interest in the company, giving them much greater influence over how it is run.
In such a scenario, the lenders may want to realise as much cash from the business as possible in a fairly short space of time to cover their credit.
So while the firm has its lending in place to 2021, the timeframe to turn things around may be much shorter.