Interserve has secured £180m of new short-term finance and deferred the test date for its loan covenants compliance for three months.
The new funds come through a mix of credit and bond facilities that will provide the company with a total of £180m for the next three months, with the facilities expiring on 30 March 2018.
In addition to the new funds, Interserve has been able to defer the date when its loan covenant compliance will be tested from the end of this year to 31 March 2018.
In October the company warned it would miss its financial covenants for the year as problem energy-from-waste deals cost the business a further £35m.
Revealing the new credit facilities on Wednesday afternoon, Interserve chief executive Debbie White said: “Securing these agreements puts Interserve on a firmer footing.
“These short-term committed borrowing facilities, together with the ongoing work to clearly define the strategy and commercial structure for the business going forward, will bring further stability and clarity for our clients, our people and our shareholders.”
Interserve’s shares jumped 9.4 per cent on the news. But CMC Markets analyst David Madden said more needed to be done.
“This isn’t a case of, ‘Right, all the problems are sorted’,” he said.
“They’ve been given the opportunity to take the first step down a positive path. That’s what this is.”
Mr Madden said that Interserve needed to work now to get this finance agreement extended.
“The credit will last for basically three months,” he said.
“If that goes well they may get another extension for six months. Then six months could become 12, 12 becomes 24, and so on.”
AJ Bell investments director Russ Mould added: “Banks are giving them breathing space and a chance to prove they’re on the right track.”
In its announcement, Interserve said it had closed out some of its foreign currency hedges, which had generated £44m that will to be used to repay existing bank debt.
ETX Capital senior market analyst Neil Wilson said this could create problems down the line.
“Closing out the currency swaps exposes them to greater foreign exchange risk,” he said.