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Interserve’s make-or-break vote explained

At 11am on Friday, Interserve’s shareholders will vote on a deleveraging plan that chief executive Debbie White has said is crucial to the company’s survival.

Here is everything you need to know about the deal.

What’s at stake

Interserve’s immediate survival depends on which way the vote goes on Friday. If it is passed, then a debt-for-equity swap and other deleveraging actions will begin. Crucially, Interserve will receive an immediate £75m cash injection that it needs to meet its short-term working-capital requirements.

If the vote is not passed, then it is expected that its lenders will trigger a repayment request that the company will not be able to meet. As a result, Interserve will go into a pre-pack administration on the Friday and administrators EY will sell the company to the lenders for a nominal amount.

Over the weekend, Interserve’s staff, assets and contracts will be transferred to a new, unlisted company, which will be owned by the lenders. The new company will start trading on the Monday.

“It will be business as usual on 18 March for all of our staff, clients and suppliers,” Ms White has said.

What’s being voted on

Interserve revealed its deleveraging plan last month and published the 286-page prospectus explaining the details of the deal. This is what will be voted on, with the main points being:

Debt-for-equity swap

  • Lenders will swap debt totalling £485m in the company for newly issued shares worth approximately £435.2m. Effectively, for every £9 of shares the lenders acquire in exchange for debt, they will cancel an additional £1 in debt.
  • The quantity of new shares issued in the swap will equal 95 per cent of all Interserve’s shares once the deal has been completed.
  • Crucially, the swap will mean the stake held by current shareholders will be massively diluted, and they will go from owning 100 per cent of the company through their equity stakes, to just 5 per cent.

Transferal of debt

  • Debt worth £350m with a four-year term will be transferred to equipment business RMD Kwikform and secured against the assets of the company. The debt will also be ringfenced from the rest of the Interserve group, which will no longer liable for the financing.
  • Of this debt, £168.3m will incur interest payable in cash at an interest rate of LIBOR plus 3 per cent.
  • The remaining £181.7m will incur ‘payable in kind’ interest at 10 per cent per year, with the interest value added to the principal due for repayment in 2023.

New lending

  • New lending worth £110m will be provided by the lenders, with Interserve immediately drawing down £75m to meet its short-term working-capital requirements. The remaining £35m can only be used for certain ’legacy liabilities’.
  • Interest will be charged at Libor plus 3 per cent per annum with the facility lasting until 2022.

Who’s supporting it

Standard Life Aberdeen, Interserve’s fourth largest shareholder with almost 5 per cent of its stock, has said it will back the plan.

Investor advisers Pension and Investment Research Consultants (PIRC) and Institutional Shareholder Services (ISS) have both also recommended shareholders vote in favour of the deal.

Who’s opposed to it

Interserve’s largest shareholder, Coltrane Asset Management, has vigorously opposed the deal.

The New York-based hedge fund, which owns almost 28 per cent of the company’s stock, has accused the company’s directors of being “bullied” into the deal by the lenders. It has also alleged that sensitive information has been shared with the lenders, but not the shareholders, which it claims is grounds for legal action against Interserve’s directors.

Farringdon Capital Management, a Dutch hedge fund that is Interserve’s second-largest shareholder, owning almost 7 per cent of the company, also reportedly opposes the deal.

Both firms face a massive dilution in their stakes as a result of new shares being issued for the debt for equity swap.

Coltrane’s stake would drop to less than 1.5 per cent while Farringdon’s would drop to around 0.3 per cent.

 

How likely is it to pass?

In order to pass, the plan needs the support of 50 per cent of shareholders who cast their vote.

Interserve’s directors have put the message out that shareholders need to back the deal or see their stakes wiped out when the company goes into administration. The company has taken out ads on Google to encourage shareholders to back the deal, too.

interserve shareholder ad

interserve shareholder ad

The company has taken out ads on Google to encourage shareholders to back the deal

However, many smaller shareholders are expected to not vote, which means support from Coltrane could be crucial to getting the deal passed.

It emerged yesterday evening that the company had held further talks with Coltrane to try to thrash out a deal that they would support.

Sky News reported that current shareholders could retain 7 per cent instead of 5 per cent of the company under a new deal. Interserve said it was seeking to improve the position of its shareholders, but warned there may not be enough time to do so.

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