Interserve agrees £300m rescue deal with banks

Multinational support services and construction giant Interserve has agreed a refinancing deal worth almost £300m with its banks after several worrying months reassuring lenders and investors in the wake of the collapse of Carillion. The deal, if signed off by lenders, should secure the immediate survival of the business.

The company announced on Wednesday 21 March 2018 that it had agreed commercial terms with lenders for additional cash facilities of £196.6m and £95m in new bonding which expire in 2021. Some industry observers had predicted that Interserve’s future was in doubt given that the firm was seeking extra funding at the same time as Carillion crashed. 

The deal will increase Interserve’s cash borrowing facilities to £834m, but does not pay down the company’s debt which is expected to rise to £600m. As a result, going forward the firm could still need to issue a rights issue or debt for equity swap in order to repair its balance sheet.

Under the new deal, Interserve’s banks have options to buy new shares, currently worth 88p, for 10p per share, which if taken up would give the banks a 20% stake in the group. Interserve also said it had “engaged extensively” with the trustees of its pension scheme to agree the deal.

Commenting on the deal, Debbie White, Interserve’s chief executive, said: “This is a significant milestone for Interserve and a major step in securing a firm financial platform to underpin the group’s future. We are encouraged by the support from our lenders in respect of these new facilities, which will allow the new management team to execute our business plan, focused on delivering a great service for customers, driving growth and restoring value.”

Interserve is one of the world’s largest private contractors, employing 80,000 people around the world. It manages the Ministry of Defence’s estate in the UK as well as providing a range of outsourced services including probation, healthcare and construction. Given the company’s strategic importance to the delivery of a number of vital public services, Interserve has been under government watch since it agreed emergency funding with lenders after breaching banking covenants last year. 

Chief executive White has brought in PwC to review the firm’s contracts and has outlined a series of cost cutting measures. A transformation plan began in October last year which the company expects to realise £15m savings in 2018. The plans is also expected to lead to 1,500 job losses this year.

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