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Interserve confirms debt-for-equity talks

Interserve has confirmed it is in talks with its lenders regarding a debt-for-equity swap.

In a statement, the contractor said it was engaged in constructive discussions regarding the agreement and implementation of a deleveraging plan.

On Friday evening, the Financial Times published an article that claimed the firm was locked in talks with its creditors over a deal that would see banks and other debt holders take a loss on their existing interest.

Interserve claimed the plans would deliver a strong balance sheet with the firm targeting leverage of approximately 1.5 x net debt / EBITDA.

The contractor added that discussions also involved proposals to amend its current financing agreements. This included the extension of the maturity dates and repayment profiles of the existing facilities.

Interserve also revealed that the form of the deleveraging plan was yet to be finalised.

However, it did say it was likely to involve the conversion of a substantial proportion of the group’s external borrowings into new equity, an element of which may be sold to existing shareholders and potentially other investors.

The firm added that, if implemented in this form, the deleveraging plan could result in material dilution for current Interserve shareholders.

The contractor intends to announce its finalised deleveraging plan, subject to shareholder approval, in early 2019.

Interserve chief executive Debbie White (pictured) said: “Our lenders are supportive of the deleveraging plan, which will underpin the long term future of Interserve.

“Our refinancing in April of this year contemplated the development of a deleveraging plan in consultation with our stakeholders and the liquidity injected at that point also gave us the funding to execute our business plan.”

The Interserve boss added that the government was in support of the measures taken by the firm.

“Our discussions with our lenders are a positive step in the process that was agreed as part of the April refinancing. The Cabinet Office has also expressed full support for the work we are doing to implement our long-term recovery plan,” she added.

Last month, a trading update from the contractor showed net debt increased more than expected and could hit £650m by the end of the year.

The business said this rise was due to further energy-from-waste losses and slow payments in the Middle East.

The November update also saw the company commit to a deleveraging plan in early 2019 to tackle its debt pile.

Interserve said it had been speaking with advisers on how to recapitalise the business.

The firm said this could include securing new investors to inject fresh funds alongside an ongoing sale of non-core assets.

The trading update was published off the back of a bruising few weeks for the contractor in which its share price tumbled to an all-time low.

A BBC report had claimed the contractor was seeking to raise additional capital and quoted one unnamed former large shareholder who claimed the firm could be “another Carillion”.

Political pressure has also begun to mount with Labour MP James Frith asking business secretary Greg Clark give assurances that the firm “would not go the way of Carillion” in the House of Commons.

Mr Frith called on Mr Clark to state whether he would “commit to press Interserve to make sure subcontractors are paid up to date and are not at risk of carrying the can for another outsourcing collapse?”

In response, the business secretary said there was nothing “further to report” in relation to the contractor.

Interserve’s statement comes as credit to the construction industry is being scaled back according to other firms in the sector.

Both Kier and Laing O’Rourke have complained of financial institutions slashing their exposure to the entire sector.

It led Kier to embark on a £264m rights issue, with CEO Haydn Mursell claiming “UK clearing banks have corporately made a decision to entirely extinguish or remove their exposure to our sector.”

Speaking to CN, the Kier boss also suggested that at least four other major UK contractors will struggle to get credit from banks.

  • Debbie White Interserve

    Interserve confirms debt-for-equity talks

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