10 December 2018 | Herpreet Kaur Grewal
Support services firm Interserve and its lenders are "in constructive discussions regarding the agreement and implementation of a deleveraging plan", according to a company update published on the weekend.
On 23 November 2018, the Interserve Board announced that it is working with its advisers to look at all options to deliver the optimum capital structure for the group to support its long-term, sustainable development.
The deleveraging plan announced in the recent update "would deliver a strong balance sheet with Interserve targeting leverage of approximately 1.5x net debt/EBITDA".
The discussions also involve proposals to amend the Group's current financing agreements, including the extension of the maturity dates and repayment profiles of the existing facilities, stated the update.
Although the form of the deleveraging plan remains to be finalised, it is 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.
If implemented in this form, the deleveraging plan could result in material dilution for current Interserve shareholders.
Interserve intends to announce its finalised deleveraging plan, which would be subject to shareholder approval, in early 2019.
Debbie White, CEO of Interserve, said: "We are making good progress on our deleveraging plan which we expect to announce early in 2019. 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. 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.
"The fundamentals of our business remain strong. The deleveraging plan will give Interserve a strong long-term capital structure and provide a solid foundation on which to build the future success of the group."
In November, the company's shares dropped to a 30-year low, and later in the month it reported "strong profit growth in-line with management expectations" on trading for the first nine months of the year ending 31 December 2018.
In October, Interserve announced it was to sell its infrastructure and industrial access and hard services business to Enigma Industrial Services Holdings.
British and Irish trade union Unite warned that Interserve could be "Carillion Mark Two".
Unite, which has 1,200 members working across Interserve, called on ministers to say what their contingency plans were in the event that Interserve was unable to restructure its debt-laden finances.
The union called into question the government's "unhealthy obsession" with the outsourcing of public services, which was "a road to nowhere with the taxpayer picking up the tab".
Unite assistant general secretary Gail Cartmail said: "The mistakes made before the collapse of Carillon in January 2018 appear in danger of being repeated - if so, this could see the hard-pressed taxpayer picking up the tab - yet again. We want to know from ministers what contingency plans are in place should Interserve be unable to restructure its debt-laden finances. We would support a temporary ban on Interserve bidding for public sector contracts, while it attempts to resolve its financial problems."
Meanwhile, Interserve announced that it had been awarded a £25 million contract with Prince Charles Hospital in Merthyr by Cwm Taf University Health Board.
The plans are a part of the next phase of the £36 million redevelopment of Prince Charles Hospital in Merthyr, which is funded by Welsh Government.