The largest shareholder in Interserve has warned its prospective administrator against arranging a pre-pack insolvency deal that would see it immediately taken over by a syndicate of lenders
Sky News has learnt that Coltrane Asset Management has hired Enyo Law, a specialist disputes firm, to represent it ahead of a crunch vote on Friday that will determine whether Interserve can secure a solvent restructuring.
City sources said on Tuesday that Enyo Law had written to EY, which is advising Interserve’s creditors and is lined up to handle an administration, to demand that it conducts a rigorous and comprehensive marketing process for the outsourcing giant and its assets.
Coltrane also raised the prospect in the letter that it could be interested in acquiring the company from an insolvency process itself, the sources added.
The latest intervention further raises the stakes in a process that will shape the future of Interserve and its 45,000-strong British workforce.
Insiders added that Enyo Law had also written on Coltrane’s behalf to Slaughter & May, Interserve’s legal advisers, to remind the company’s board of its disclosure obligations to shareholders.
The Sunday Times reported at the weekend that Coltrane was preparing legal action against the outsourcer’s directors
Coltrane, which holds a stake of about 27%, is seeking to oust most of Interserve’s board and intends to vote against the proposed debt restructuring without a substantial improvement to the existing plan, which would see existing shareholders owning just 5%.
Sky News revealed on Monday that Interserve’s lenders were discussing a sweetener to that plan, potentially by increasing the amount of equity that would be offered to shareholders to 7.5%.
The company subsequently confirmed in a stock exchange announcement that talks were ongoing about such an improvement to the terms for shareholders but cautioned that the truncated timetable meant there was no guarantee that a revised agreement could be reached.
A source close to one shareholder said they would need to be offered as much as 20% of the company’s shares in order to persuade them to support Interserve’s board – a level that looks inconceivable just three days before the shareholder vote.
Coltrane has proposed a rival restructuring package that includes a rights issue that it would underwrite.
The outsourcer’s board, however, has dismissed Coltrane’s plan as unworkable within the required timeframe.
Lenders such as Cerberus Capital Management and Davidson Kempner, which have agreed to provide more than £100m of new liquidity to Interserve, have pledged to write off £1 of debt for every £9 being converted to equity.
Without support from a majority of shareholders, Interserve is expected to be placed into administration immediately after the vote, with lenders expected to take 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’s 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.
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.
Interserve declined to comment on the potential sweetener to its offer to shareholders.
(c) Sky News 2019: Top Interserve shareholder warns on asset sales