Interserve’s biggest shareholder has raised the stakes in the battle for control of the struggling government contractor.
Coltrane Asset Management, the New York hedge fund that holds 27 per cent of Interserve voting rights, has proposed to underwrite a £110m rights issue that would reduce the company’s debt and plug any gaps in liquidity this year. This would “cure the primary trigger for the creditors’ ability to force a default and insolvency of the company,” Coltrane said.
The revised offer from Coltrane is part of a long-running battle between banks and major shareholders ahead of a meeting on March 15 that will determine the future of Interserve, which is one of Britain’s leading providers of outsourced public services.
Interserve’s 45,000 staff in the UK maintain and clean workplaces, schools and hospitals. However, the company is struggling for survival after expanding into areas in which it had no expertise, including the construction of energy-producing incinerators, a move that lost it £220m. Its net debt has ballooned to £738m, dwarfing the £27m equity in the company, and raising fears that it will collapse like its larger rival Carillion last year.
Months of talks between Interserve and its lenders have produced an outline agreement under which they would exchange £485m of borrowings for £435m in new shares. The deal would give creditors — which include hedge funds such as Davidson Kempner, Angelo Gordon and Cerberus and major UK banks such as RBS and HSBC — 95 per cent of the business after they raised their offer to shareholders from 2.5 to 5 per cent of the company.
But Coltrane argues that the plan will almost wipe out shareholders while rewarding those who have bought up Interserve’s debt at 50 per cent of its value from high street banks that have hurried to reduce their exposure in the past two years.
The hedge fund wants to remove the entire board of Interserve apart from Debbie White, the chief executive, and is threatening to sue if the company ignores its proposal and goes into administration.
“The Coltrane proposal offers a materially superior outcome to the company and all its critical stakeholders — namely its customers, bonding and guarantee providers, the pension fund, and the government,” it said.
Interserve insists that “there is no plan B” and that lenders are unlikely to agree to a deal that would make them worse off. “Are lenders really going to come back to the table to agree to a deal that sees them take the hit,” said one person close to the creditors.
The company has paid £76m in adviser fees over the past 12 months including to EY, which has been advising banks, Rothschild, which is advising Interserve, Numis, the broker, Ashurst and Slaughter and May, the legal firms, Grant Thornton, the accountant, and Tulchan, a public relations firm. EY has also been lined up to manage its administration if Interserve cannot reach agreement with shareholders on a restructuring plan, with a prepack administration one of the most likely options.
In a stock exchange announcement, Interserve said it would consider the proposal. “In the meantime, the board remains committed to achieving a consensual deleveraging plan,” it added.
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