The New York-based hedge fund attempting to derail the rescue plan of struggling UK outsourcer Interserve made millions of pounds betting on the demise of its rival contractor Carillion last year.
Coltrane Asset Management, the biggest investor in Interserve, earned £4m wagering on Carillion’s collapse by selling its shares short.
It is also one of the biggest shareholders in Capita and has short positions on UK outsourcer Mitie, which is the most shorted stock in the support services and construction sector with 5.6 per cent of shares held by investors betting on a fall in the company’s share price.
Interserve is one of the government’s biggest contractors employing 45,000 staff in the UK, nearly twice the number of Carillion, another big supplier to departments including the Ministry of Defence and the Ministry of Health.
Carillion collapsed in January 2018 leaving banks, investors and pensioners nursing heavy losses and the government struggling to deliver key services such as hospital cleaning and school meals. Some 3,000 staff lost their jobs, with another 14,000 transferred to other employers, in one of the biggest corporate failures in British history.
Anguished talks between banks, the Cabinet Office and executives produced a draft agreement this week that would stop Interserve going under in exchange for the contractor being taken over by its lenders — which include BNP Paribas, HSBC and Royal Bank of Scotland as well as lenders Davidson Kempner and Emerald Investment Partners. The company has turnover of £3.2bn but its market value has fallen to £17m, down from £500m two years ago.
The deal faces numerous obstacles; not only do the banks need to sign off on the details but existing shareholders in the company would be wiped out.
Coltrane Asset Management, the company’s largest shareholder with 27 per cent of voting rights, is attempting to derail the agreement after the value of its shareholding slipped from £25m to £3m.
The hedge fund has requisitioned an extraordinary general meeting to remove Glyn Barker, 65, as Interserve’s chairman, and most of the rest of the board.
People close to Coltrane said it was confident of winning support from the numerous smaller investors — which include Hargreaves Lansdown and Standard Life — by the end of March deadline for the meeting.
“On the basis that shareholders are being wiped out, you’d imagine that they would win,” one person close to Coltrane said.
Interserve has promised to deliver more detailed proposals of the debt-for-equity swap within weeks. But any failure risks the business falling into administration, said people close to the company. “There is no plan B,” said one. “Getting the banks to agree this was hard enough so what could be agreed if this doesn’t make it over the wire isn’t clear.”
Options could include a pre-pack deal, which would see it fall into administration and then be taken over by the debt holders. Another could be a debt holder buying out the borrowings or shares in the business and gaining complete control.
Interserve’s deal, which was rushed out this week, would entail £480m of new shares being handed to lenders and bondholders in a debt-for-equity swap. Around £350m of its £650m debt would be secured against RMD Kwikform, its profitable construction subsidiary, meaning banks could seize the division if the company ran into further difficulties. A further £75m of borrowing facilities was also agreed.
Emerald, a private equity vehicle backed by the Scottish pubs tycoon Alan Macintosh, is a pivotal figure in the contractor’s refinancing discussions. It bought about £140m of Interserve’s debt in the secondary market last year for as little as 50p in the pound and stands to gain millions if the debt-for-equity swap is agreed.
Interserve ran into trouble after a series of ill-timed acquisitions, lossmaking contracts and a disastrous venture into energy from waste plants, from which it is still struggling to recover. The company is already under investigation by the Financial Conduct Authority over the timeliness and accuracy of statements between July 2016 and February 2017. The period predates current chief executive Debbie White’s appointment.
Additional reporting by Robert Smith
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