Lenders to Interserve are considering a last-ditch effort to win over shareholders by further increasing the amount of equity handed to them in a £500m restructuring deal.
Sky News has learnt that a group of banks and investment funds are weighing whether to offer existing Interserve investors 7.5% of the company’s shares ahead of a crunch vote on Friday that will determine its future.
Sources close to the company said the sweetener – the second since the outsourcing giant unveiled its original debt reduction plan last month – was not yet certain to be proposed by Interserve’s board.
If it is formally made by Interserve, it would need to take place early this week in order to give shareholders sufficient time to consider it before the vote, they added.
Interserve is facing opposition to its current restructuring plan from Coltrane Asset Management, which holds 27% of its shares and has proposed a rival financial package including a rights issue that it would underwrite.
The outsourcer’s board, however, has dismissed Coltrane’s plan as unworkable within the required timeframe.
It was unclear on Monday whether a revised proposal leaving lenders with 92.5% of Interserve – versus the 95% they would receive under the current plan – would be sufficient to win over Coltrane and other disgruntled investors.
Lenders such as Cerberus Capital Management and Davidson Kempner, which have agreed to provide more than £100m of new liquidity, have also pledged to write off £1 of debt for every £9 being converted to equity.
Without enough support from shareholders, Interserve is expected to be placed into administration immediately after the vote, with lenders taking over the company through a process known as a pre-pack insolvency.
While that would constitute a change of control, which could have implications for a number of Interserve’s contracts, officials in Whitehall – which accounts for the majority of its revenues – have expressed support for the company’s deleveraging plan.
Interserve employs 45,000 people in the UK, and its financial travails have elicited comparisons with Carillion, the construction group which collapsed early last year.
However, the groundwork that has been laid for Interserve’s business to continue as usual in the event of a pre-pack has allayed fears about a repetition of the disruption which occurred after Carillion’s demise.
This week’s vote is on a knife-edge, with proxy advisers including ISS recommending that shareholders support the deal.
Aberdeen Standard Investments, which owns about 6% of the outsourcer, has declared its support for the debt-for-equity swap.
Coltrane, which wants to remove the company’s entire board apart from Debbie White, the chief executive, is said to be considering legal action against the board over the detail and timing of previous stock market disclosures.
The restructuring has been further complicated by Sky News’ revelation last month that the outsourcer was facing a double financial bombshell in the form of a provision that would trigger an immediate £66m repayment to lenders if its refinancing is not approved by investors.
Interserve would also be required to repay tens of millions of pounds if Mark Whiteling, its chief financial officer, is removed from the board.
The company is one of the biggest private sector employers in areas such as office cleaning, while it also cleans the London Underground, and maintains British Army bases around the world.
Like other outsourcers, Interserve has been left financially troubled by depleted margins on major contracts and a disastrous foray into the waste-to-energy sector.
Its troubles have seen its shares collapse by 75% over the last year amid fears that it might not survive, and that a rescue deal would heavily dilute existing investors’ interests.
In a statement, Interserve confirmed that it had been in discussions with Coltrane and its lenders “which have sought to establish the basis on which Coltrane would support the company’s restructuring proposal”.
It added that it was seeking to improve the position of all shareholders but that there was no certainty it would be able to do so “in the very limited time available” and that currently the only plan able to be implemented was the current one.
(c) Sky News 2019: Interserve lenders in talks about last-ditch deal sweetener