Lenders take control as Interserve collapses
Hedge funds force outsourcer into administration after rejecting rescue plan
INTERSERVE has collapsed into administration, handing its assets over to its lenders as part of a pre-pack administration process that wipes out its shareholders but will save the business and 68,000 jobs worldwide.
In a brief statement the troubled outsourcer said that under new ownership the company will have “a strong balance sheet, competitive financial structure and a fundamentally solid foundation”.
EY has been appointed as administrator after shareholders voted to reject a rescue package put together by Interserve’s management team. Hunter Kelly, joint administrator at EY, said it was clear that “any period of uncertainty would have resulted in a collapse across the group”.
“This transaction secured the jobs of 68,000 employees, the majority of whom work in the UK, as well as ensuring there was no disruption to the vital public services that Interserve provides to the UK Government.
“This transaction had the support of not only the lenders and the performance bond providers, but also the pension schemes.”
The lenders that will take control of Interserve under the CVA include RBS, HSBC and BNP Paribas, along with Emerald Asset Management and Davidson Kempner Capital. The new owners will write off about half of Interserve’s debt pile and give it a £110m much-needed cash injection. Shareholders are being left with nothing.
US hedge fund Coltrane Asset Management, which owned 28pc of the shares, together with another hedge fund, Farringdon Capital, were instrumental in getting the rescue deal, which was rejected by 59pc of voting shareholders, binned. They had put forward an alternative deal, calling for the board to be ousted. But at a shareholder meeting yesterday, Interserve’s chairman, Glyn Barker, said Coltrane’s proposal was unviable. “They presented it to us in four Powerpoint slides – it was not capable of implementation,” he said.
Interserve’s rejected rescue plan was structured around a debt-for-equity swap that would have seen its lenders take control in exchange for writing off £485m of debt and injecting £110m of new funding. Existing shareholders would have been left with 5pc of the group.
“Your company has a crippling and unsustainable level of debt,” Mr Barker told the meeting yesterday. “We’ve only been able to continue trading today because our lenders have been supportive of this deal and have deferred exercising their rights because they believe this is the best possible outcome for all.”
Although Coltrane and Farringdon together owned just a third of the shares, they were able to get the deal rejected because just 55pc of Interserve’s shareholders voted. Of the other investors who took part in the vote, 95pc were in favour of the board’s rescue plan.
Interserve is one of the country’s biggest outsourcers. It cleans schools and hospitals, runs probation services and builds roads and bridges. About two thirds of its business comes from government contracts.
But it had been battling to avoid a collapse like Carillion after it hit trouble about three years ago. High debt levels combined with an ill-fated push into the energy-for-waste market pushed Interserve to the brink. Carillion’s high-profile collapse in January 2018 meant confidence in the outsourcing sector plummeted.